<PAGE> 1
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
SEPARATE ACCOUNT A
FOR SERIES 2.1 TO 2.12 January 1, 1998
PROSPECTUS
Portfolio Director 2 consists of group and individual variable annuity contracts
that are offered by The Variable Annuity Life Insurance Company to Participants
in certain employer sponsored retirement plans. Portfolio Director 2 may be
available to you when you participate in a retirement program that qualifies for
deferral of federal income taxes. Non-qualified contracts are also available for
certain employer plans only. Portfolio Director 2 is composed of the following
contract forms: UIT-194, UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director 2 permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
EIGHTEEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Founders Funds, Inc.: Templeton Funds, Inc.:
Company (AGSPC): Founders Growth Fund Templeton Foreign Fund
Growth Fund Neuberger&Berman Management Inc.:
International Government Bond Fund Neuberger&Berman Guardian Trust The Vanguard Group, Inc.:
Money Market Fund Vanguard Fixed Income
Science & Technology Fund Putnam Investments: Securities Fund --
Social Awareness Fund Putnam Global Growth Fund Long-Term Corporate
Stock Index Fund Putnam New Opportunities Fund Portfolio
Putnam OTC & Emerging Growth Vanguard Fixed Income
American Century Investment Fund Securities Fund --
Management, Inc.: Long-Term U.S.
American Century -- Twentieth Scudder Kemper Investments, Inc.: Treasury Portfolio
Century Ultra Fund Scudder Growth and Income Fund Vanguard/Wellington Fund
Vanguard/Windsor II
</TABLE>
* Each of these mutual funds is publicly available except for the six AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director 2. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated January 1, 1998, has been filed
with the Securities and Exchange Commission. This Statement of Additional
Information contains additional information about Portfolio Director 2 and is
part of this prospectus. For a free copy, complete and return the form contained
in the back of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS......................... 1
PROFILE OF PORTFOLIO DIRECTOR 2.............. 2
FEE TABLE.................................... 4
SELECTED PURCHASE UNIT DATA.................. 7
ABOUT PORTFOLIO DIRECTOR 2................... 9
ABOUT VALIC.................................. 9
ABOUT VALIC SEPARATE ACCOUNT A............... 9
VARIABLE ACCOUNT OPTIONS..................... 10
Summary of Funds........................ 10
PURCHASE PERIOD.............................. 20
Purchase Payments....................... 20
Purchase Units.......................... 20
Calculation of Purchase Unit Value...... 20
Choosing Investment Options............. 21
Fixed Account Options.............. 21
Variable Account Options........... 21
Stopping Purchase Payments.............. 21
TRANSFERS BETWEEN INVESTMENT OPTIONS......... 22
During the Purchase Period.............. 22
During the Payout Period................ 22
Communicating Transfer or Reallocation
Instructions.......................... 22
Effective Date of Transfer.............. 22
FEES AND CHARGES............................. 23
Account Maintenance Fee................. 23
Surrender Charge........................ 23
Amount of Surrender Charge......... 23
10% Free Withdrawal................ 23
Exceptions to Surrender
Charge........................... 23
Premium Tax Charge...................... 24
Separate Account Charges................ 24
Fund Annual Expense Charge.............. 24
Other Tax Charges....................... 24
Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration
and Distribution Fee Charges.......... 25
Separate Account Expense
Reimbursement......................... 25
PAYOUT PERIOD................................ 26
Fixed Payout............................ 26
Variable Payout......................... 26
Combination Fixed and Variable Payout... 26
Payout Date............................. 26
Payout Options.......................... 26
Enhancements to Payout Options.......... 27
Payout Information...................... 27
SURRENDER OF ACCOUNT VALUE................... 28
When Surrenders are Allowed............. 28
Amount That May Be Surrendered.......... 28
Surrender Restrictions.................. 28
Partial Surrenders...................... 28
Systematic Withdrawals.................. 28
Distributions Required By Federal Tax
Law................................... 29
EXCHANGE PRIVILEGE........................... 30
Restrictions on Exchange Privilege...... 30
Taxes and Conversion Costs.............. 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Surrender Charge........................ 30
Exchange Offers for Contracts Other Than
Portfolio Director and Portfolio
Director 2............................ 30
Exchange Offer for Portfolio Director
and Portfolio Director 2.............. 31
Comparison of Contracts................. 31
Features of Portfolio Director 2........ 31
Agents' and Managers' Retirement Plan
Exchange Offer........................ 31
DEATH BENEFITS............................... 33
Beneficiary Information................. 33
Special Information for Individual
Non-Tax Qualified Contracts........... 33
During the Purchase Period.............. 33
Interest Guaranteed Death
Benefit.......................... 33
Standard Death Benefit............. 34
During the Payout Period................ 34
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS................. 35
Types of Investment Performance
Information Advertised................ 35
Total Return Performance
Information........................... 35
Standard Average Annual Total
Return................................ 35
Nonstandard Average Annual Total
Return................................ 35
Cumulative Total Return............... 35
Annual Change in Purchase Unit
Value................................. 35
Cumulative Change in Purchase Unit
Value.............................. 36
Total Return Based on Different
Investment Amounts................. 36
An Assumed Account Value of $10,000.. 36
Yield Performance Information........... 36
AGSPC Money Market Division........... 36
Divisions Other Than The AGSPC Money
Market Division.................... 36
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in
Purchase Unit Value Tables............ 36
OTHER CONTRACT FEATURES...................... 40
Changes That May Not Be Made............ 40
Change of Beneficiary................... 40
Contingent Owner........................ 40
Cancellation -- The 20 Day "Free
Look"................................. 40
We Reserve Certain Rights............... 40
Relationship to Employer's Plan......... 40
VOTING RIGHTS................................ 41
Who May Give Voting Instructions........ 41
Determination of Fund Shares
Attributable to Your Account.......... 41
During Purchase Period................ 41
During Payout Period or after a Death
Benefit Has Been Paid.............. 41
How Fund Shares Are Voted............... 41
FEDERAL TAX MATTERS.......................... 42
Type of Plans........................... 42
Tax Consequences in General............. 42
Effect of Tax-Deferred Accumulations.... 43
</TABLE>
(i)
<PAGE> 3
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 22
Annuitant 33
Assumed Investment Rate 26
Beneficiary 33
Contract Owner 33
Division 35
Fixed Account Options 33
Home Office 22
Mutual Fund or Fund 09
Participant 01
Participant Year 23
Payout Period 22
Payout Unit 26
Purchase Payments 20,35
Purchase Period 22
Purchase Unit 21
VALIC Separate Account A 41
Variable Account Options 10,33
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director 2,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director 2 will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director 2 except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director 2. This summary is called the "Profile of Portfolio Director
2." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 4
PROFILE OF PORTFOLIO DIRECTOR 2
- --------------------------------------------------------------------------------
Portfolio Director 2 is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director 2's major features is presented below. For a more detailed
discussion of Portfolio Director 2, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director 2 offers you a choice from among 18 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Stock Growth through investments tracking VALIC
EQUITY Index the S&P 500(R) Index
FUND Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY American Century -- Capital growth through American Century
FUNDS Twentieth Century investments in common
Ultra Fund stock
-----------------------------------------------------------------------------------------------------------
Founders Long-term growth of capital through Founders
Growth investment in common stock of well
Fund established, high quality growth companies
-----------------------------------------------------------------------------------------------------------
Neuberger&Berman Capital appreciation, and secondarily Neuberger&Berman
Guardian Trust current income by investing primarily Management Inc.
in common stocks of long-established,
high quality companies
-----------------------------------------------------------------------------------------------------------
Putnam Global Capital appreciation through a globally Putnam
Growth Fund diversified portfolio of common stocks
-----------------------------------------------------------------------------------------------------------
Putnam New Long-term capital appreciation Putnam
Opportunities Fund through investment in common stock
-----------------------------------------------------------------------------------------------------------
Putnam OTC & Capital appreciation through Putnam
Emerging Growth investments in common stocks of
Fund small-to-medium companies
-----------------------------------------------------------------------------------------------------------
Scudder Growth Long-term growth of capital, current Scudder
and Income Fund income and growth of income
-----------------------------------------------------------------------------------------------------------
Templeton Growth through investments Templeton
Foreign in companies and governments
Fund outside the U.S.
-----------------------------------------------------------------------------------------------------------
Vanguard/ Growth and income through Vanguard
Windsor II investment in common stock
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Vanguard/ Income and growth through 30 to 40% Vanguard
FUND Wellington investment in high quality corporate bonds
Fund and 60 to 70% investment in common stocks
- -------------------------------------------------------------------------------------------------------------------------------
INCOME AGSPC International Income and possible growth through VALIC
FUNDS Government investments in high quality foreign
Bond Fund government debt securities
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment Vanguard
Securities in long-term quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------
FIXED --
OPTIONS
--------------------
--
- ----------------------------------------
SUBADVISER
- ----------------------------------------
INDEX Bankers Trust
EQUITY
FUND
- ----------------------------------------
ACTIVELY T. Rowe Price
MANAGED
--------------------
EQUITY N/A
FUNDS
--------------------
N/A
--------------------
Neuberger&
Berman, LLC
--------------------
N/A
--------------------
N/A
--------------------
N/A
--------------------
N/A
--------------------
N/A
--------------------
N/A
- ----------------------------------------
BALANCED N/A
FUND
- ----------------------------------------
INCOME N/A
FUNDS
--------------------
N/A
--------------------
N/A
- ----------------------------------------
SPECIALTY T. Rowe Price
FUNDS
--------------------
N/A
- ----------------------------------------
MONEY N/A
MARKET
FUND
- ----------------------------------------
</TABLE>
2
<PAGE> 5
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director 2 offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director 2 offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director 2's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens
the surrender charge is computed in two ways and you are charged whichever
amount is less. The first amount is simply 5% of whatever amount you have
withdrawn. The second amount is 5% of the contributions you made to your account
during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 1.00% to 1.25% on the average daily net asset value
of VALIC Separate Account A. Reductions in the mortality and expense risk fee
and administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. For more information as to which Variable Account Options have a
Separate Account Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director 2 can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
3
<PAGE> 6
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT TOTAL
EXPENSE RISK DISTRIBUTION EXPENSE SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- -----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.25% 0.75% -- 1.00%
AGSPC International Government Bond 0.25 0.75 -- 1.00
AGSPC Money Market 0.25 0.75 -- 1.00
AGSPC Science & Technology 0.25 0.75 -- 1.00
AGSPC Social Awareness 0.25 0.75 -- 1.00
AGSPC Stock Index 0.25 0.75 -- 1.00
American Century -- Twentieth
Century Ultra(4) 0.25 1.00 (0.21%) 1.04
Founders Growth(4) 0.25 1.00 (0.25) 1.00
Neuberger&Berman Guardian Trust(4) 0.25 1.00 (0.25) 1.00
Putnam Global Growth(4) 0.25 1.00 (0.25) 1.00
Putnam New Opportunities(4) 0.25 1.00 (0.25) 1.00
Putnam OTC & Emerging Growth(4) 0.25 1.00 (0.25) 1.00
Scudder Growth and Income(4) 0.25 1.00 (0.25) 1.00
Templeton Foreign(4) 0.25 1.00 (0.25) 1.00
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio 0.25 1.00 -- 1.25
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio 0.25 1.00 -- 1.25
Vanguard/Wellington 0.25 1.00 -- 1.25
Vanguard/Windsor II 0.25 1.00 -- 1.25
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES FEES EXPENSES(5) EXPENSES
---- ---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC International Government Bond 0.50 -- 0.06 0.56
AGSPC Money Market 0.50 -- 0.07 0.57
AGSPC Science & Technology 0.90 -- 0.06 0.96
AGSPC Social Awareness 0.50 -- 0.06 0.56
AGSPC Stock Index 0.27 -- 0.07 0.34
American Century -- Twentieth Century Ultra 1.00 -- 0.00 1.00
Founders Growth 0.71 0.25%(4) 0.23 1.19
Neuberger&Berman Guardian Trust(6) 0.84 -- 0.04 0.88
Putnam Global Growth 0.65 0.25(4) 0.37 1.27
Putnam New Opportunities 0.50 0.25(4) 0.31 1.06
Putnam OTC & Emerging Growth 0.56 0.25(4) 0.35 1.16
Scudder Growth and Income 0.49 -- 0.29 0.78
Templeton Foreign 0.61 0.25(4) 0.22 1.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio 0.03 -- 0.25 0.28
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio 0.01 -- 0.24 0.25
Vanguard/Wellington 0.04 -- 0.27 0.31
Vanguard/Windsor II 0.13 -- 0.26 0.39
</TABLE>
See footnotes on page 6.
4
<PAGE> 7
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $19 $ 59 $101 $218
AGSPC International Government Bond Division
13 16 49 85 186
AGSPC Money Market Division 6 16 50 86 187
AGSPC Science & Technology Division 17 20 62 106 229
AGSPC Social Awareness Division 12 16 49 85 186
AGSPC Stock Index Division 10 14 42 74 162
American Century -- Twentieth Century Ultra
Division 31 21 64 110 237
Founders Growth Division 30 22 69 118 253
Neuberger&Berman Guardian Trust
Division 29 19 59 102 221
Putnam Global Growth Division 28 23 71 122 261
Putnam New Opportunities Division 26 21 65 111 239
Putnam OTC & Emerging Growth Division 27 22 68 116 250
Scudder Growth and Income Division 21 18 56 97 210
Templeton Foreign Division 32 21 65 112 242
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 16 48 84 183
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio Division
23 15 47 82 180
Vanguard/Wellington Division 25 16 49 85 186
Vanguard/Windsor II Division 24 17 52 89 195
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $20 $ 61 $104 $226
AGSPC International Government Bond Division
13 17 51 89 194
AGSPC Money Market Division 6 17 52 89 195
AGSPC Science & Technology Division 17 21 64 109 236
AGSPC Social Awareness Division 12 17 51 89 194
AGSPC Stock Index Division 10 14 45 77 170
American Century -- Twentieth Century Ultra
Division 31 21 66 114 245
Founders Growth Division 30 23 71 121 260
Neuberger&Berman Guardian Trust
Division 29 20 61 105 228
Putnam Global Growth Division 28 24 73 125 268
Putnam New Opportunities Division 26 22 67 115 247
Putnam OTC & Emerging Growth Division 27 23 70 120 257
Scudder Growth and Income Division 21 19 58 100 218
Templeton Foreign Division 32 22 67 116 249
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 16 51 87 191
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio Division
23 16 50 86 187
Vanguard/Wellington Division 25 17 51 89 194
Vanguard/Windsor II Division 24 17 54 93 203
</TABLE>
5
<PAGE> 8
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $66 $110 $154 $226
AGSPC International Government Bond Division 13 63 101 139 194
AGSPC Money Market Division 6 63 102 139 195
AGSPC Science & Technology Division 17 67 113 159 236
AGSPC Social Awareness Division 12 63 101 139 194
AGSPC Stock Index Division 10 61 95 127 170
American Century -- Twentieth Century Ultra
Division 31 68 115 164 245
Founders Growth Division 30 69 120 171 260
Neuberger&Berman Guardian Trust
Division 29 66 111 155 228
Putnam Global Growth Division 28 70 122 175 268
Putnam New Opportunities Division 26 68 116 165 247
Putnam OTC & Emerging Growth Division 27 69 119 170 257
Scudder Growth and Income Division 21 65 108 150 218
Templeton Foreign Division 32 68 116 166 249
Vanguard Fixed Income Securities Fund -- Long-
Term Corporate Portfolio Division 22 63 100 137 191
Vanguard Fixed Income Securities Fund -- Long-
Term U.S. Treasury Portfolio Division 23 63 99 136 187
Vanguard/Wellington Division 25 63 101 139 194
Vanguard/Windsor II Division 24 64 104 143 203
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) Reductions in the mortality and expense risk fee or administration fee may
be available for plan types meeting certain criteria. See "Reduction or
Waiver of Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee
or Administration Fee Charges" in this prospectus.
(4) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to these Divisions are reduced by an amount equal to payments from the
underlying Fund and/or its affiliate for administrative and shareholder
services provided by the Company. See "Fees and Charges -- Separate Account
Expense Reimbursement" in this prospectus for more information.
The following Funds and/or their affiliates pay administrative, shareholder
service or distribution fees to the Company: American Century -- Twentieth
Century (0.21%), Founders (0.25%), Neuberger&Berman (0.25%), Putnam (0.25%),
Scudder (0.25%) and Templeton (0.25%) With respect to American
Century -- Twentieth Century Ultra Fund, the Fund pays fees to the Company
of 0.20% on assets in excess of $0 but less than $75 million, and 0.25% on
assets in excess of $75 million.
(5) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(6) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies to, and as part of
a "master/feeder structure" invests in, the same portfolio as
Neuberger&Berman Guardian Fund ("Fund"), which is also managed by
Neuberger&Berman Management Incorporated ("N&B"). N&B voluntarily bears
certain expenses of the Trust so that the Trust's expense ratio per annum
will not exceed the expense ratio per annum of the Fund by more than 0.10%
of the Trust's average daily net assets. This arrangement can be terminated
on sixty days' notice.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 9
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL AGSPC AGSPC AGSPC
AGSPC GOVERNMENT MONEY SCIENCE & SOCIAL AGSPC FOUNDERS
GROWTH BOND MARKET TECHNOLOGY AWARENESS STOCK INDEX GROWTH
DIVISION 15 DIVISION 13 DIVISION 6 DIVISION 17 DIVISION 12 DIVISION 10(1) DIVISION 30
----------- ----------- ---------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1997
Purchase Units in Force 435,426,799 114,974,983 78,794,996 371,398,329 72,986,447 595,543,590 97,415,997
Purchase Unit Value $2.067747 $1.517149 $1.656203 $2.619568 $2.892412 $5.658534 $1.315313
December 31, 1996
Purchase Units in Force 366,272,509 112,601,593 75,124,095 315,809,646 46,574,016 536,806,965 31,197,464
Purchase Unit Value $1.733324 $1.582230 $1.607212 $2.250471 $2.252673 $2.848437 $1.029522
July 1, 1996
Initial Offering Value $1.000000
December 31, 1995
Purchase Units in Force 164,417,848 73,369,250 51,907,757 187,862,232 32,750,120 455,255,243
Purchase Unit Value $1.466652 $1.530780 $1.545802 $1.997175 $1.835102 $2.343900
December 31, 1994
Purchase Units in Force 32,633,370 25,691,713 75,765,781 42,726,137 29,015,764 416,234,288
Purchase Unit Value $1.001834 $1.301357 $1.479129 $1.247713 $1.333899 $1.724134
April 29, 1994
Purchase Unit Value(2) $1.000000 -- -- $1.000000 -- --
December 31, 1993
Purchase Units in Force -- 18,155,381 24,799,810 -- 26,230,566 369,550,060
Purchase Unit Value -- $1.258340 $1.439327 -- $1.366979 $1.729327
December 31, 1992
Purchase Units in Force -- 6,245,713 23,414,474 -- 16,956,437 283,808,045
Purchase Unit Value -- $1.112826 $1.415690 -- $1.279516 $1.589718
December 31, 1991
Purchase Units in Force -- 953,038 25,545,494 -- 8,447,711 90,526,907
Purchase Unit Value -- $1.090499 $1.384882 -- $1.250634 $1.505641
October 1, 1991
Purchase Unit Value(2) -- $1.000000 -- -- -- --
December 31, 1990
Purchase Units in Force -- -- 25,246,481 -- 2,947,418 46,016,297
Purchase Unit Value -- -- $1.325393 -- $0.987666 $1.179000
December 31, 1989
Purchase Units in Force -- -- 15,949,534 -- 212,636 22,325,990
Purchase Unit Value -- -- $1.240599 -- $1.010003 $1.238782
October 2, 1989
Purchase Unit Value(2) -- -- -- -- $1.000000 --
December 31, 1988
Purchase Units in Force -- -- 9,429,191 -- -- 9,213,178
Purchase Unit Value -- -- $1.149516 -- -- $0.968670
December 31, 1987
Purchase Units in Force -- -- 4,121,853 -- -- 4,326,102
Purchase Unit Value -- -- $1.087299 -- -- $0.856238
April 20, 1987
Purchase Unit Value(2) -- -- -- -- -- $1.000000
December 31, 1986
Purchase Units in Force -- -- 914,106 -- -- --
Purchase Unit Value -- -- $1.040484 -- -- --
<CAPTION>
NEUBERGER&
BERMAN
GUARDIAN TRUST
DIVISION 29
--------------
<S> <C>
September 30, 1997
Purchase Units in Force 8,211,592
Purchase Unit Value $1.418366
December 31, 1996
Purchase Units in Force 8,211,592
Purchase Unit Value $1.120770
July 1, 1996
Initial Offering Value $1.000000
December 31, 1995
Purchase Units in Force
Purchase Unit Value
December 31, 1994
Purchase Units in Force
Purchase Unit Value
April 29, 1994
Purchase Unit Value(2)
December 31, 1993
Purchase Units in Force
Purchase Unit Value
December 31, 1992
Purchase Units in Force
Purchase Unit Value
December 31, 1991
Purchase Units in Force
Purchase Unit Value
October 1, 1991
Purchase Unit Value(2)
December 31, 1990
Purchase Units in Force
Purchase Unit Value
December 31, 1989
Purchase Units in Force
Purchase Unit Value
October 2, 1989
Purchase Unit Value(2)
December 31, 1988
Purchase Units in Force
Purchase Unit Value
December 31, 1987
Purchase Units in Force
Purchase Unit Value
April 20, 1987
Purchase Unit Value(2)
December 31, 1986
Purchase Units in Force
Purchase Unit Value
</TABLE>
- ------------
(1) Effective with the merger of Quality Growth Fund into Stock Index Fund on
May 1, 1992, Quality Growth Division 9 was merged into Stock Index Division
10. The merger of Divisions was accomplished by an exchange of units of
Quality Growth Division 9 for units of Stock Index Division 10 of equivalent
value as calculated at the close of business on April 30, 1992.
(2) Purchase Unit Value At Date Of Inception.
7
<PAGE> 10
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VANGUARD VANGUARD
FIXED INCOME FIXED INCOME
SECURITIES FUND- SECURITIES FUND-
PUTNAM OTC SCUDDER LONG-TERM LONG-TERM
PUTNAM GLOBAL PUTNAM NEW & EMERGING GROWTH AND TEMPLETON TWENTIETH CORPORATE U.S. TREASURY
GROWTH OPPORTUNITIES GROWTH INCOME FOREIGN CENTURY ULTRA PORTFOLIO PORTFOLIO
DIVISION 28 DIVISION 26 DIVISION 27 DIVISION 21 DIVISION 32 DIVISION 31 DIVISION 22 DIVISION 23
- ------------- ------------- ----------- ----------- ----------- ------------- ---------------- ----------------
<C> <C> <C> <C> <C> <C> <C> <C>
40,083,255 119,847,368 90,702,228 69,057,119 129,505,001 72,344,807 10,947,364 13,059,945
$1.260237 $1.148476 $1.046169 $1.430944 $1.240977 $1.310623 $1.127278 $1.115563
16,648,600 53,001,699 48,902,828 16,524,046 36,671,828 16,654,076 3,370,441 4,174,369
$1.057690 $0.947573 $0.894978 $1.114950 $1.075896 $1.039845 $1.047595 $1.048470
$1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000 $1.000000
<CAPTION>
PUTNAM GLOBAL VANGUARD/ VANGUARD/
GROWTH WELLINGTON WINDSOR II
DIVISION 28 DIVISION 25 DIVISION 24
- ------------- ----------- -----------
<C> <C> <C>
40,083,255 89,732,633 150,427,778
$1.260237 $1.307147 $1.411396
16,648,600 22,866,634 37,292,761
$1.057690 $1.101584 $1.120855
$1.000000 $1.000000 $1.000000
</TABLE>
- ------------
Financial statements of VALIC Separate Account A are included in the Statement
of Additional Information, which is available upon request. Purchase units shown
are for a Purchase Unit outstanding throughout the year under a representative
Contract of the type invested in each column shown. The unit value of each
Division of VALIC Separate Account A will not be the same on any given day as
the net asset value per share of the underlying Fund of the Series Company and
the other mutual fund portfolios described in this prospectus in which that
Division invests. This is because each unit value consists of the underlying
share's net asset value minus the charges to VALIC Separate Account A. In
addition, dividends declared by the underlying Fund are reinvested by the
Division in additional shares. These distributions have the effect of reducing
the value of each share of the Fund and increasing the number of Fund shares
outstanding. However, the total cash value in VALIC Separate Account A does not
change as a result of such distributions.
8
<PAGE> 11
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR 2
Portfolio Director 2 was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director 2 can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director 2 will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
2 called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director 2.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director 2. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director 2's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director 2. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Eighteen
Divisions are available and represent the Variable Account Options in Portfolio
Director 2. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director 2. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director 2. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director 2, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director 2, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director 2 be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director 2. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR 2
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
9
<PAGE> 12
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director 2 enables you to participate in Divisions that represent
eighteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Twelve of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director 2 and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 6 funds, for which VALIC serves as investment
adviser.
- - American Century Investments -- offers 1 fund for which American Century
Investment Management, Inc. serves as investment adviser.
- - Founders Funds, Inc. -- offers 1 fund for which Founders Asset Management,
Inc. serves as investment adviser.
- - Neuberger&Berman Management Inc. -- offers 1 fund for which Neuberger&Berman
Management Inc. serves as investment manager and Neuberger&Berman LLC, serves
as sub-adviser.
- - Putnam Investments -- offers 3 funds for which Putnam Investment Management
Inc., serves as investment adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - Templeton Funds Inc. -- offers 1 fund for which Templeton Global Advisors
Limited serves as investment adviser.
- - The Vanguard Group Inc. -- offers 4 funds for which Barrow, Hanley, Mewhinney
& Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management,
Inc., Vanguard Core Management Group, Wellington Management Company, LLP and
Vanguard Fixed Income Group serve as investment advisers.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified Fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the change in an Account Value of an
assumed $10,000 investment in each of the Divisions is shown in both table and
graph form. This will reflect a deduction for separate account fees (mortality
and expense risk fees plus administration and distribution fees minus any
applicable reimbursements) and underlying fund charges. This will not reflect
any deduction for account maintenance fees, surrender charges and premium taxes.
These charges would further reduce your return. The Account Values shown reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. For more information about how these returns were calculated
including a statement of the charges reflected and tables showing historical
performance information see "How to Review Investment Performance of Separate
Account Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director 2.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
10
<PAGE> 13
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<C> <C>
04/29/94 $10,000
09/30/94 10,037
09/30/95 13,920
09/30/96 16,994
09/30/97 20,677
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<C> <C>
10/01/91 $10,000
09/30/92 11,993
09/30/93 12,589
09/30/94 12,980
09/30/95 14,991
09/30/96 15,469
09/30/97 15,171
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED SEPTEMBER 30
11
<PAGE> 14
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 10,494
09/30/89 11,329
09/30/90 12,115
09/30/91 12,752
09/30/92 13,098
09/30/93 13,318
09/30/94 13,616
09/30/95 14,213
09/30/96 14,789
09/30/97 15,390
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<C> <C>
04/29/94 $10,000
09/30/94 11,316
09/30/95 19,444
09/30/96 22,568
09/30/97 26,196
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED SEPTEMBER 30
12
<PAGE> 15
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<C> <C>
10/02/89 $10,000
09/30/90 8,988
09/30/91 11,313
09/30/92 12,031
09/30/93 13,735
09/30/94 13,453
09/30/95 17,345
09/30/96 20,916
09/30/97 28,924
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,573
09/30/89 11,038
09/30/90 9,862
09/30/91 12,616
09/30/92 13,773
09/30/93 15,392
09/30/94 15,673
09/30/95 20,088
09/30/96 23,885
09/30/97 33,165
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
13
<PAGE> 16
AMERICAN CENTURY --
TWENTIETH CENTURY ULTRA
FUND
Investor Class Shares
(Division 31)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital growth. The Fund invests primarily in common stocks that are
considered to have better-than-average prospects for appreciation.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,150
09/30/89 11,820
09/30/90 10,259
09/30/91 18,672
09/30/92 18,704
09/30/93 27,689
09/30/94 25,159
09/30/95 35,294
09/30/96 38,768
09/30/97 49,321
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
FOUNDERS GROWTH FUND
(Division 30)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital. Fund invests primarily in common stocks of
well established, high-quality growth companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,243
09/30/89 12,290
09/30/90 9,872
09/30/91 13,122
09/30/92 13,556
09/30/93 19,442
09/30/94 18,672
09/30/95 25,674
09/30/96 30,161
09/30/97 39,230
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
14
<PAGE> 17
NEUBERGER&BERMAN
GUARDIAN TRUST*
(Division 29)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation and, secondarily, current income. The Trust invests
primarily in common stocks of long-established, high quality companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,663
09/30/89 12,138
09/30/90 9,896
09/30/91 13,580
09/30/92 15,713
09/30/93 18,759
09/30/94 19,698
09/30/95 25,791
09/30/96 27,338
09/30/97 37,595
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
PUTNAM GLOBAL GROWTH
FUND
Class A Shares (Division 28)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. Current income is only an incidental consideration
in selecting investments for the Fund. The Fund is designed for investors
seeking above-average capital growth potential through a globally diversified
portfolio of common stocks. Dividend and interest income is only an incidental
consideration.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,132
09/30/89 10,328
09/30/90 9,198
09/30/91 11,129
09/30/92 11,078
09/30/93 13,454
09/30/94 14,730
09/30/95 15,894
09/30/96 18,056
09/30/97 22,484
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund(SM) ("Fund"), which is also
managed by Neuberger& Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for the periods prior to
the Trust's commencement of operations would have been lower had they
reflected the higher expense ratios of the Trust as compared to those of the
Fund.
15
<PAGE> 18
PUTNAM NEW OPPORTUNITIES
FUND
Class A Shares
(Division 26)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. Current income is only an incidental
consideration. The Fund invests principally in common stocks of companies in
sectors of the economy which the Fund's investment adviser believes possess
above-average long-term growth potential.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<C> <C>
08/31/90 $10,000
09/30/90 9,162
09/30/91 16,173
09/30/92 18,111
09/30/93 28,528
09/30/94 30,206
09/30/95 41,611
09/30/96 52,026
09/30/97 58,972
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED SEPTEMBER 30
PUTNAM OTC & EMERGING
GROWTH FUND
Class A Shares
(Division 27)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. The Fund invests primarily in common stocks traded
in the over-the-counter ("OTC") market and common stocks, of "emerging growth"
companies listed on securities exchanges. The Fund is designed for investors
willing to assume above-average risk in return for above average capital growth
potential. The Fund may trade securities for short-term profits.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,678
09/30/89 11,575
09/30/90 8,816
09/30/91 12,561
09/30/92 13,459
09/30/93 19,605
09/30/94 19,964
09/30/95 29,092
09/30/96 36,466
09/30/97 38,759
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
16
<PAGE> 19
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,800
09/30/89 11,544
09/30/90 10,165
09/30/91 12,872
09/30/92 14,313
09/30/93 16,836
09/30/94 17,967
09/30/95 21,221
09/30/96 25,177
09/30/97 34,929
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
TEMPLETON FOREIGN FUND
Class I Shares
(Division 32)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through a flexible policy of investing in stocks
and debt obligations of companies and governments outside the United States. Any
income realized will be incidental.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,460
09/30/89 12,170
09/30/90 12,386
09/30/91 14,254
09/30/92 14,718
09/30/93 17,508
09/30/94 20,287
09/30/95 21,407
09/30/96 23,330
09/30/97 28,824
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
17
<PAGE> 20
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade corporate and government bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 11,483
09/30/89 12,857
09/30/90 13,059
09/30/91 15,555
09/30/92 17,896
09/30/93 20,495
09/30/94 18,814
09/30/95 22,289
09/30/96 22,625
09/30/97 25,317
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests at least 85% of its assets in long-term
securities backed by the full faith and credit of the U.S. Government. Also, at
least 65% of the Fund assets will be invested in U.S. Treasury bills, notes and
bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 11,439
09/30/89 12,960
09/30/90 12,999
09/30/91 15,481
09/30/92 17,236
09/30/93 20,417
09/30/94 18,129
09/30/95 21,939
09/30/96 21,981
09/30/97 24,402
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
18
<PAGE> 21
VANGUARD/WELLINGTON FUND
Institutional Class Shares
(Division 25)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks conservation of principal, a reasonable income return, and profits without
undue risk.
This Fund seeks relative capital stability, a reasonable level of income, and
the potential for capital appreciation. By balancing its investments among
common stocks and bonds, the Fund is expected to provide lower investment risk
and share price volatility (and a lower return in the long run) than a mutual
fund which invests exclusively in common stocks.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,846
09/30/89 11,875
09/30/90 10,736
09/30/91 13,351
09/30/92 14,695
09/30/93 16,573
09/30/94 16,843
09/30/95 20,604
09/30/96 23,476
09/30/97 29,600
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
VANGUARD/WINDSOR II
Institutional Class Shares
(Division 24)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and income by investing primarily
in common stocks. The Fund's secondary objective is to provide current income.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,520
09/30/89 12,375
09/30/90 9,997
09/30/91 13,110
09/30/92 14,854
09/30/93 17,202
09/30/94 17,168
09/30/95 21,758
09/30/96 25,920
09/30/97 35,501
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
19
<PAGE> 22
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director 2 account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director 2 was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment accompanies an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will take one of the following
actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
20
<PAGE> 23
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 20 investment options offered in Portfolio Director 2. This includes 2
Fixed Account Options and 18 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 20 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director 2 Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed
Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options
(including applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director 2 account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
21
<PAGE> 24
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director 2 without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director 2's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director 2's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
-------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
-------------- ----------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable Up to 100% Once every 365 days None
Payout: of money in
variable
option
payout
Fixed: Not -- --
permitted
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
22
<PAGE> 25
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director 2, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director 2 is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
23
<PAGE> 26
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director 2 is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an annualized rate of 1.00% to 1.25% on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director 2,
no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee and administration
and distribution fee, see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
24
<PAGE> 27
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REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender charges, mortality and expense risk fee or administration and
distribution fee for Portfolio Director 2 may be reduced or waived. We may
reduce or waive these fees and charges if we determine that your retirement
program will allow us to reduce or eliminate administrative or sales expenses
that we usually incur for retirement programs. There are a number of factors we
will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method
of remitting Purchase Payments, reduce administrative costs.
We review the following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow
us to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense risk fee or administration and distribution
fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. See the Fee Table in this prospectus for an identification of those
Funds for which a reimbursement applies.
25
<PAGE> 28
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment
experience of the Variable Account Option is lower than your Assumed Investment
Rate, your next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
26
<PAGE> 29
- --------------------------------------------------------------------------------
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
27
<PAGE> 30
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<C> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<C> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director 2. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No
28
<PAGE> 31
- --------------------------------------------------------------------------------
more than one systematic withdrawal election may be in effect at any one time.
We reserve the right to discontinue any or all systematic withdrawals or to
change its terms, at any time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director 2 Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
29
<PAGE> 32
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director 2. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director 2. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director 2 to other contract forms are not
permitted (Exchanges between Portfolio Director 2 and other contracts in the
Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director 2. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director 2. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director 2.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director 2.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director 2 will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director 2, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director 2 will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director 2.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director 2 for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director 2 surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
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<PAGE> 33
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Portfolio Director 2 will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director to
Portfolio Director 2. You may also exchange from Portfolio Director 2 to
Portfolio Director. Additionally, you may also make exchanges among the series
of Portfolio Director 2. Once you have made any of the exchanges described in
this paragraph you must wait 120 days before making another exchange between
Portfolio Director and Portfolio Director 2.
Both Portfolio Director and Portfolio Director 2 are available to qualified
contracts and certain non-qualified contracts. Portfolio Director 2 is not
available to non-qualified contracts issued to individuals. Please read the
"Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director 2.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director 2. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director 2 is provided in the Statement of Additional Information.
Portfolio Director and Portfolio Director 2 contain the same provisions except
as to the level of fees and as to available Variable Account Options and certain
Separate Account Expense Reimbursements. See "Fees and Changes" in this
prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
FEATURES OF PORTFOLIO DIRECTOR 2
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director 2.
- Portfolio Director 2 has more investment options to select from.
- Portfolio Director 2 has 12 publicly available mutual funds as investment
options.
- The Portfolio Director 2 surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director 2 has an Interest Guaranteed Death Benefit.
- Portfolio Director 2's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Different series of Portfolio Director 2 may charge fees higher or lower
than other series of Portfolio Director 2.
- Portfolio Director 2's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts, Independence Plus Contracts
and Portfolio Director for the equivalent units of interest in Portfolio
Director 2.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director 2 any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director 2 from SA-1,
Independence Plus or Portfolio Director Contracts may have surrender charges and
account maintenance fees imposed under Portfolio Director 2. All other
provisions with regard to exchange offers referenced in the section entitled
"Exchange Offers" will apply to the Agents' and Managers' Retirement Plan
Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will have
three options to choose from. As to the funding vehicle for
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<PAGE> 34
- --------------------------------------------------------------------------------
their purchase payment plan, the participant may choose to:
- Remain in the SA-1 Contract, Independence Plus Contract or Portfolio
Director.
- Leave current assets in the SA-1 Contract, Independence Plus or Portfolio
Director and direct future Purchase Payments to Portfolio Director 2; or
- Transfer all current assets and future Purchase Payments to Portfolio
Director 2.
If the participant chooses to remain in either the SA-1 Contract, Independence
Plus Contract or Portfolio Director, future Purchase Payments and current assets
will be controlled by the provisions of the SA-1 Contract, Independence Plus
Contract or Portfolio Director, respectively. If the participant chooses to
leave current assets in the SA-1 Contract, the Independence Plus Contract or
Portfolio Director and direct future Purchase Payments to Portfolio Director 2,
the current assets will be controlled by the provisions of the SA-1 Contract,
the Independence Plus Contract or Portfolio Director, respectively. The future
Purchase Payments will be controlled by the terms of Portfolio Director 2
subject to the exception that surrender charges and account maintenance fees
will not be imposed under Portfolio Director 2. If the participant chooses to
transfer all current assets and future Purchase Payments to Portfolio Director
2, such current assets and future Purchase Payments will be controlled by the
provisions of Portfolio Director 2 subject to the exception that surrender
charges and account maintenance fees will not be imposed under Portfolio
Director 2.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 2 the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. Exchanges to Portfolio Director will be
permitted. See "Exchange Offer for Portfolio Director and Portfolio Director 2"
in this prospectus. If a participant chooses to transfer future Purchase
Payments but not current assets to Portfolio Director 2, the participant will be
allowed at a later date to transfer the current assets to Portfolio Director 2.
For a complete analysis of the differences between the SA-1 contract, the
Independence Plus Contract or Portfolio Director and Portfolio Director 2, you
should refer to the Statement of Additional Information and the form of the
contract or certificate for its terms and conditions.
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<PAGE> 35
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director 2 will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director 2 may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director 2.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the
Contingent Owner, if any, or to the Contract Owner's estate. Such transfers will
be considered a taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (MINUS)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (PLUS)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director 2 are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director 2. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
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<PAGE> 36
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STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director 2 are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
Under federal tax laws if the Life with Guaranteed Periods Option is chosen on a
variable basis, it may be treated in the same manner as a surrender of your
Portfolio Director 2 account. If your account is surrendered the full amount
your Beneficiary receives will normally be treated as income for that year. This
amount generally will also be taxed at rates used for ordinary income.
34
<PAGE> 37
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director 2 was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director 2 in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the
Division. This will include account maintenance fees and surrender charges that
would have been deducted if you surrendered Portfolio Director 2 at the end of
each period shown. Premium taxes are not deducted. This information is
calculated for each Division based on how an initial assumed payment of $1,000
performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director 2 will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director 2. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
35
<PAGE> 38
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director 2 charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual changes in the Purchase Unit Value based on an initial
investment of $10,000. This will not reflect any deduction for account
maintenance fees, surrender charges and premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. The 7-day Current Yield for the last 7 days ended
September 30, 1997 was 4.12%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. The 7-day Effective Yield for the last 7 days ended September 30, 1997
was 4.20%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director 2 of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
36
<PAGE> 39
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15).................... 04/29/94 22.67% -- -- 26.07% 16.58%
AGSPC International Government Bond (Division
13)......................................... 10/01/91 7.07 -- 3.85% 3.70 (6.41)
AGSPC Money Market (Division 6)............... 01/16/86 -- 4.28% 2.26 2.50 (0.69)
AGSPC Science & Technology (Division 17)...... 04/29/94 31.67 -- -- 31.19 10.99
AGSPC Social Awareness (Division 12).......... 10/02/89 14.22 -- 18.54 27.93 33.19
AGSPC Stock Index (Division 10)............... 04/20/87 -- 12.60 18.58 27.23 33.75
American Century -- Twentieth Century Ultra
(Division 31)............................... 11/02/81 -- 17.20 20.83 23.98 22.12
Founders Growth (Division 30)................. 01/05/62 -- 14.55 23.14 26.95 24.97
Neuberger&Berman Guardian Trust (Division
29)(1)...................................... 06/01/50 -- 14.06 18.46 22.85 32.42
Putnam Global Growth (Division 28)............ 09/01/67 -- 8.35 14.54 13.77 19.44
Putnam New Opportunities (Division 26)........ 08/31/90 28.33 -- 26.14 23.80 8.27
Putnam OTC & Emerging Growth (Division 27).... 11/01/82 -- 14.41 23.02 23.57 1.43
Scudder Growth and Income (Division 21)(2).... 11/13/84 -- 13.23 18.94 23.62 33.64
Templeton Foreign (Division 32)............... 10/05/82 -- 11.07 13.70 10.99 18.46
Vanguard Fixed Income Securities Fund-
Long-Term Corporate Portfolio (Division
22)......................................... 07/09/73 -- 9.64 6.32 8.93 6.82
Vanguard Fixed Income Securities Fund-
Long-Term U.S. Treasury Portfolio (Division
23)......................................... 05/19/86 -- 9.24 6.34 8.94 5.94
Vanguard/Wellington (Division 25)............. 07/01/29 -- 11.37 14.36 19.42 20.99
Vanguard/Windsor II (Division 24)............. 06/24/85 -- 13.41 18.43 26.26 31.86
</TABLE>
- ---------------
* The returns shown are since inception of the underlying Funds that have been
in existence for less than ten years.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
(1) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on May 31, 1929.
37
<PAGE> 40
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)...................... 04/29/94 23.69% -- -- 27.24% 21.67%
AGSPC International Government Bond
(Division 13)................................. 10/01/91 7.19 -- 4.81% 5.34 (1.92)
AGSPC Money Market (Division 6)................. 01/16/86 -- 4.41% 3.28 4.17 4.07
AGSPC Science & Technology (Division 17)........ 04/29/94 32.56 -- -- 32.28 16.07
AGSPC Social Awareness (Division 12)............ 10/02/89 14.36 -- 19.18 29.07 38.29
AGSPC Stock Index (Division 10)................. 04/20/87 -- 12.74 19.21 28.38 38.85
American Century -- Twentieth Century Ultra
(Division 31)................................. 11/02/81 -- 17.30 21.40 25.15 27.22
Founders Growth (Division 30)................... 01/05/62 -- 14.65 23.68 28.08 30.07
Neuberger&Berman Guardian Trust (Division
29)(1)........................................ 06/01/50 -- 14.16 19.06 24.04 37.52
Putnam Global Growth (Division 28).............. 09/01/67 -- 8.44 15.21 15.14 24.53
Putnam New Opportunities (Division 26).......... 08/31/90 28.47 -- 26.63 24.98 13.35
Putnam OTC & Emerging Growth (Division 27)...... 11/01/82 -- 14.51 23.56 24.75 6.29
Scudder Growth and Income (Division 21)......... 11/13/84 -- 13.32 19.53 24.81 38.74
Templeton Foreign (Division 32)................. 10/05/82 -- 11.17 14.39 12.42 23.55
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division 22)... 07/09/73 -- 9.73 7.18 10.40 11.90
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23)........................................... 05/19/86 -- 9.33 7.20 10.41 11.01
Vanguard/Wellington (Division 25)............... 07/01/29 -- 11.46 15.03 20.68 26.08
Vanguard/Windsor II (Division 24)............... 06/24/85 -- 13.51 19.04 27.40 36.96
</TABLE>
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)..................... 04/29/94 106.77% -- -- 106.02% 21.67%
AGSPC International Government Bond (Division
13).......................................... 10/01/91 51.71 -- 26.50% 16.88 (1.92)
AGSPC Money Market (Division 6)................ 01/16/86 -- 53.90% 17.50 13.03 4.07
AGSPC Science & Technology (Division 17)....... 04/29/94 161.96 -- -- 131.49 16.07
AGSPC Social Awareness (Division 12)........... 10/02/89 189.24 -- 140.42 115.01 38.29
AGSPC Stock Index (Division 10)................ 04/20/87 -- 231.65 140.79 111.61 38.85
American Century -- Twentieth Century Ultra
(Division 31)................................ 11/02/81 -- 393.20 163.68 96.04 27.22
Founders Growth (Division 30).................. 01/05/62 -- 292.30 189.38 110.11 30.07
Neuberger&Berman Guardian Trust (Division
29)(1)....................................... 06/01/50 -- 275.95 139.26 90.86 37.52
Putnam Global Growth (Division 28)............. 09/01/67 -- 124.84 102.96 52.64 24.53
Putnam New Opportunities (Division 26)......... 08/31/90 489.72 -- 225.62 95.23 13.35
Putnam OTC & Emerging Growth (Division 27)..... 11/01/82 -- 287.59 187.97 94.14 6.29
Scudder Growth and Income (Division 21)........ 11/13/84 -- 249.29 144.04 94.40 38.74
Templeton Foreign (Division 32)................ 10/05/82 -- 188.24 95.85 42.08 23.55
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22).......................................... 07/09/73 -- 153.17 41.47 34.57 11.90
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23).......................................... 05/19/86 -- 144.02 41.57 34.60 11.01
Vanguard/Wellington (Division 25).............. 07/01/29 -- 196.00 101.43 75.74 26.08
Vanguard/Windsor II (Division 24).............. 06/24/85 -- 255.01 139.00 106.79 36.96
</TABLE>
- ---------------
* The returns shown are since inception of the underlying Funds that have been
in existence for less than ten years.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
38
<PAGE> 41
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE
12 MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ------------------------------------------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... 21.67% 22.08% 38.69% 0.37% --
AGSPC International Government Bond
(Division 13)*........................... (1.92) 3.18 15.50 3.10 4.97%
AGSPC Money Market (Division 6)........... 4.07 4.06 4.38 2.24 1.68
AGSPC Science & Technology (Division
17)*..................................... 16.07 16.07 71.82 13.16 --
AGSPC Social Awareness (Division 12)*..... 38.29 20.59 28.93 (2.06) 14.17
AGSPC Stock Index (Division 10)........... 38.85 18.91 28.17 1.83 11.75
American Century -- Twentieth Century
Ultra (Division 31)...................... 27.22 9.84 40.29 (9.14) 48.03
Founders Growth (Division 30)............. 30.07 17.47 37.50 (3.96) 43.42
Neuberger&Berman Guardian Trust (Division
29)(1)................................... 37.52 6.00 30.93 5.00 19.38
Putnam Global Growth (Division 28)........ 24.53 13.60 7.90 9.48 21.45
Putnam New Opportunities (Division 26)*... 13.35 25.03 37.76 5.88 57.52
Putnam OTC & Emerging Growth (Division
27)...................................... 6.29 25.35 45.72 1.83 45.66
Scudder Growth and Income (Division 21)... 38.74 18.64 18.11 6.72 17.63
Templeton Foreign (Division 32)........... 23.55 8.98 5.52 15.87 18.96
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 11.90 1.51 18.47 (8.20) 14.53
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 11.01 0.19 21.01 (11.21) 18.46
Vanguard/Wellington (Division 25)......... 26.08 13.94 22.33 1.63 12.78
Vanguard/Windsor II (Division 24)......... 36.96 19.13 26.73 (0.20) 15.81
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE
12 MONTHS ENDED SEPTEMBER 30
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ------------------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... -- -- -- -- --
AGSPC International Government Bond
(Division 13)*........................... 19.93% -- -- -- --
AGSPC Money Market (Division 6)........... 2.72 5.26% 6.94% 7.95% 4.94%
AGSPC Science & Technology (Division
17)*..................................... -- -- -- -- --
AGSPC Social Awareness (Division 12)*..... 6.35 25.87 (10.12) -- --
AGSPC Stock Index (Division 10)........... 9.17 27.93 (10.65) 28.75 (14.27)
American Century -- Twentieth Century
Ultra (Division 31)...................... 0.17 82.01 (13.21) 45.03 (18.50)
Founders Growth (Division 30)............. 3.31 32.93 (19.68) 49.10 (17.57)
Neuberger&Berman Guardian Trust (Division
29)(1)................................... 15.71 37.23 (18.48) 25.62 (3.37)
Putnam Global Growth (Division 28)........ (0.46) 20.99 (10.94) 27.00 (18.68)
Putnam New Opportunities (Division 26)*... 11.98 76.52 (8.38) -- --
Putnam OTC & Emerging Growth (Division
27)...................................... 7.15 42.48 (23.83) 33.37 (13.22)
Scudder Growth and Income (Division 21)... 11.19 26.63 (11.95) 31.18 (12.00)
Templeton Foreign (Division 32)........... 3.25 15.09 1.77 28.65 (5.40)
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 15.05 19.11 1.57 11.97 14.83
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 11.34 19.09 0.30 13.29 14.39
Vanguard/Wellington (Division 25)......... 10.07 24.35 (9.59) 20.61 (1.54)
Vanguard/Windsor II (Division 24)......... 13.30 31.14 (19.22) 30.00 (4.80)
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR
EACH PERIOD END SINCE 09/30/87
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ------------------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... 106.77% 69.94% 39.20% 0.37% --
AGSPC International Government Bond
(Division 13)*........................... 51.71 54.69 49.91 29.80 25.89%
AGSPC Money Market (Division 6)........... 53.90 47.89 42.13 36.16 33.18
AGSPC Science & Technology (Division
17)*..................................... 161.96 125.68 94.44 13.16 --
AGSPC Social Awareness (Division 12)*..... 189.24 109.16 73.45 34.53 37.35
AGSPC Stock Index (Division 10)........... 231.65 138.85 100.88 56.73 53.92
American Century -- Twentieth Century
Ultra (Division 31)...................... 393.21 287.68 252.94 151.59 176.89
Founders Growth (Division 30)............. 292.30 201.61 156.74 86.72 94.42
Neuberger&Berman Guardian Trust (Division
29)(1)................................... 275.95 173.38 157.91 96.98 87.59
Putnam Global Growth (Division 28)........ 124.84 80.56 58.94 47.30 34.54
Putnam New Opportunities (Division 26)*... 489.72 420.26 316.11 202.06 185.28
Putnam OTC & Emerging Growth (Division
27)...................................... 287.59 264.66 190.92 99.64 96.05
Scudder Growth and Income (Division 21)... 249.29 151.77 112.21 79.67 68.36
Templeton Foreign (Division 32)........... 188.24 133.30 114.07 102.87 75.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 153.17 126.25 122.89 88.14 104.95
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 144.02 119.81 119.39 81.29 104.17
Vanguard/Wellington (Division 25)......... 196.00 134.76 106.04 68.43 65.73
Vanguard/Windsor II (Division 24)......... 255.01 159.20 117.58 71.68 72.02
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR
EACH PERIOD END SINCE 09/30/87
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ------------------------------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... -- -- -- -- --
AGSPC International Government Bond
(Division 13)*........................... 19.93% -- -- -- --
AGSPC Money Market (Division 6)........... 30.98 27.52% 21.15% 13.29% 4.94%
AGSPC Science & Technology (Division
17)*..................................... -- -- -- -- --
AGSPC Social Awareness (Division 12)*..... 20.31 13.13 (10.12) -- --
AGSPC Stock Index (Division 10)........... 37.73 26.16 (1.38) 10.38 (14.27)
American Century -- Twentieth Century
Ultra (Division 31)...................... 87.04 86.72 2.59 18.20 (18.50)
Founders Growth (Division 30)............. 35.56 31.22 (1.28) 22.90 (17.57)
Neuberger&Berman Guardian Trust (Division
29)(1)................................... 57.13 35.80 (1.04) 21.38 (3.37)
Putnam Global Growth (Division 28)........ 10.78 11.29 (8.02) 3.28 (18.68)
Putnam New Opportunities (Division 26)*... 81.11 61.73 (8.38) -- --
Putnam OTC & Emerging Growth (Division
27)...................................... 34.59 25.61 (11.84) 15.75 (13.22)
Scudder Growth and Income (Division 21)... 43.13 28.72 1.65 15.44 (12.00)
Templeton Foreign (Division 32)........... 47.18 42.54 23.86 21.70 (5.40)
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 78.96 55.55 30.59 28.57 14.83
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 72.36 54.81 29.99 29.60 14.39
Vanguard/Wellington (Division 25)......... 46.95 33.51 7.36 18.75 (1.54)
Vanguard/Windsor II (Division 24)......... 48.54 31.10 (0.03) 23.75 (4.80)
</TABLE>
- ------------
* For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
39
<PAGE> 42
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director 2 may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director 2 in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
40
<PAGE> 43
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director 2
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director 2
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
41
<PAGE> 44
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director 2 provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director 2 is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 unfunded deferred compensation plans of governmental and
tax-exempt employers;
- Section 408(k) simplified deferred
compensation plans of private
employers.
The foregoing Contracts are "Qualified Contracts." Certain series of Portfolio
Director 2 may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director 2 is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director 2 can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director 2 is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the amount by which
a distribution exceeds investment in the Contract is subject to income tax. For
annuity payments, investment in the contract is recovered ratably over the
expected payout period. Special recovery rules might apply in certain
situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code
42
<PAGE> 45
- --------------------------------------------------------------------------------
Section 817(h)) which specifically exempts these Qualified Contracts, and the
IRS has no viable legal basis or reason to apply the theory of the 1981 ruling
to these Qualified Contracts under current law. In any event, were the IRS to
challenge the deferred tax treatment of these Qualified Contracts under the
theory of the 1981 ruling, VALIC and its tax counsel believe that Contract
owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director 2 Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (1% - 1.25%) and may also incur account maintenance fees ($3.75 per
quarter) and surrender charges (5% of the lesser of all contributions received
during the last 60 months or the amount withdrawn). The dotted lines represent
the amounts remaining after withdrawal and payment of taxes and any surrender
charge. An additional 10% tax penalty may apply to withdrawals before age
59 1/2. This information is for illustrative purposes only and is not a
guarantee of future return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent annual fixed yield of 5.76% under a conventional
savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE REDUCED BY THE
IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary depending upon the
timing of withdrawals. The previous chart represents (without factoring in fees
and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by
43
<PAGE> 46
- --------------------------------------------------------------------------------
comparing a pre-tax contribution to a tax-favored retirement plan with an
after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount
available for
savings before
federal taxes...... $2,500 $2,500
Current federal
income tax due on
Purchase
Payments........... 0 (700)
Net retirement plan
Purchase
Payments........... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes on $2,500 contributed to the conventional savings
account remains in the tax-qualified program, subject to being taxed upon
withdrawal. Stated otherwise, to reach an annual retirement savings goal of
$2,500, the contribution to a tax-qualified retirement program results in a
current out-of-pocket expense of $1,800 while the contribution to a conventional
savings account requires the full $2,500 out-of-pocket expense. The
tax-qualified retirement program represented in this chart is a plan type, such
as one under Section 403(b) of the Code, which allows participants to exclude
contributions within limits, from gross income.
44
<PAGE> 47
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
Participant/Contract Owner Signature Date
Mail this form to any Regional Office (see the last page of your prospectus for addresses) or to the Home
Office at the following address: VALIC, Customer Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
</TABLE>
45
<PAGE> 48
(This page intentionally left blank)
<PAGE> 49
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
Address: Policy #
Social Security Number:
- -------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 50
(This page intentionally left blank)
<PAGE> 51
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 7
Types of Variable Annuity Contracts................. 8
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 8
Tax Consequences of Distributions............... 9
Special Tax Consequences -- Early
Distribution.................................. 10
Special Tax Consequences -- Required
Distributions................................. 11
Tax Free Rollovers, Transfers and Exchanges..... 12
Exchange Privilege.................................. 12
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 12
Exchanges From Independence Plus Contracts...... 13
Exchanges From V-Plan Contracts................. 14
Exchanges From SA-1 and SA-2 Contracts.......... 15
Exchanges From Impact Contracts................. 16
Exchanges From Compounder Contracts............. 17
Information Which May Be Applicable To Any
Exchange...................................... 18
Calculation of Surrender Charge..................... 19
Illustration of Surrender Charge on Total Surrender.. 19
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 19
Purchase Unit Value................................. 20
Illustration of Calculation of Purchase Unit
Value......................................... 20
Illustration of Purchase of Purchase Units...... 20
Performance Calculations............................ 20
Money Market Division Yields.................... 20
Calculation of Yield for Money Market
Division Six.................................. 20
Illustration of Calculation of Yield for Money
Market Division Six........................... 20
Calculation of Effective Yield for Money Market
Division Six.................................. 21
Illustration of Calculation of Effective Yield
for Money Market Division Six................. 21
Standardized Yield for Bond Fund Divisions.......... 21
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 21
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 21
Calculation of Average Annual Total Return...... 22
Performance Information............................. 23
Hypothetical $10,000 Account Value and
Cumulative Return as Compared
to Benchmark Tables........................... 23
Performance Compared to Market Indices.......... 23
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 26
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 27
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 27
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 28
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 28
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 29
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 29
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 30
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 30
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 31
Putnam OTC & Emerging Growth Division
Twenty-seven Compared to Russell 2000 Index
and S&P 500 Index............................. 32
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 32
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 33
Vanguard Fixed Income Securities Fund -- Long-
Term Corporate Portfolio Division Twenty-two
Compared to Merrill Lynch Corporate Master
Index......................................... 33
Vanguard Fixed Income Securities Fund -- Long-
Term U.S. Treasury Portfolio Division Twenty-
three Compared to Lehman Brothers U.S.
Treasury Long-Term Index...................... 34
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 34
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 35
Payout Payments..................................... 36
Assumed Investment Rate......................... 36
Amount of Payout Payments....................... 36
Payout Unit Value............................... 36
Illustration of Calculation of Payout Unit
Value......................................... 37
Illustration of Payout Payments................. 37
Distribution of Variable Annuity Contracts.......... 38
Experts............................................. 38
Comments on Financial Statements.................... 39
</TABLE>
49
<PAGE> 52
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
10851 N. Black Canyon Hwy
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 774-7844
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(650) 574-5433
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
(303) 988-3344
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
(813) 961-1611
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
(317) 574-7145
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 750-5611
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
(919) 489-6529
Two Summit Park Drive
Suite 410
Independence, OH 44131
(216) 520-2028
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
(503) 223-6288
1767 Sentry Pkwy. West 19
Suite 300
Blue Bell, PA 19422
(215) 646-8030
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
(972) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 465-2253
There are also more than forty branch offices located throughout the country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 53
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
SEPARATE ACCOUNT A
FOR SERIES 2.1.20 TO 2.12.20 January 1, 1998
PROSPECTUS
Certain series of Portfolio Director 2 consist of group and individual variable
annuity contracts that are offered by The Variable Annuity Life Insurance
Company ("VALIC") to Participants in certain employer sponsored retirement
plans. Portfolio Director 2 Series 2.1.20 to 2.12.20 consists of group variable
annuity contracts that are offered by VALIC to Participants in certain employer
sponsored retirement plans. Portfolio Director 2 may be available to you when
you participate in a retirement program that qualifies for deferral of federal
income taxes. Non-qualified contracts are also available for certain employer
plans only. Portfolio Director 2 is composed of the following contract forms:
UIT-194, UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director 2 permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
EIGHTEEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Founders Funds, Inc.: Templeton Funds, Inc.:
Company (AGSPC): Founders Growth Fund Templeton Foreign Fund
Growth Fund Neuberger&Berman Management Inc.:
International Government Bond Fund Neuberger&Berman Guardian Trust The Vanguard Group, Inc.:
Money Market Fund Vanguard Fixed Income
Science & Technology Fund Putnam Investments: Securities Fund --
Social Awareness Fund Putnam Global Growth Fund Long-Term Corporate
Stock Index Fund Putnam New Opportunities Fund Portfolio
Putnam OTC & Emerging Growth Vanguard Fixed Income
American Century Investment Fund Securities Fund --
Management, Inc.: Long-Term U.S.
American Century -- Twentieth Scudder Kemper Investments, Inc.: Treasury Portfolio
Century Ultra Fund Scudder Growth and Income Fund Vanguard/Wellington Fund
Vanguard/Windsor II
</TABLE>
* Each of these mutual funds is publicly available except for the six AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director 2. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated January 1, 1998, has been filed
with the Securities and Exchange Commission. This Statement of Additional
Information contains additional information about Portfolio Director 2 and is
part of this prospectus. For a free copy, complete and return the form contained
in the back of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS......................... 1
PROFILE OF PORTFOLIO DIRECTOR 2.............. 2
FEE TABLE.................................... 4
SELECTED PURCHASE UNIT DATA.................. 7
ABOUT PORTFOLIO DIRECTOR 2................... 8
ABOUT VALIC.................................. 8
ABOUT VALIC SEPARATE ACCOUNT A............... 8
VARIABLE ACCOUNT OPTIONS..................... 9
Summary of Funds........................ 9
PURCHASE PERIOD.............................. 19
Purchase Payments....................... 19
Purchase Units.......................... 19
Calculation of Purchase Unit Value...... 19
Choosing Investment Options............. 20
Fixed Account Options.............. 20
Variable Account Options........... 20
Stopping Purchase Payments.............. 20
TRANSFERS BETWEEN INVESTMENT OPTIONS......... 21
During the Purchase Period.............. 21
During the Payout Period................ 21
Communicating Transfer or Reallocation
Instructions.......................... 21
Effective Date of Transfer.............. 21
FEES AND CHARGES............................. 22
Account Maintenance Fee................. 22
Surrender Charge........................ 22
Amount of Surrender Charge......... 22
10% Free Withdrawal................ 22
Exceptions to Surrender
Charge........................... 22
Premium Tax Charge...................... 23
Separate Account Charges................ 23
Fund Annual Expense Charge.............. 23
Other Tax Charges....................... 23
Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration
and Distribution Fee Charges.......... 24
Separate Account Expense
Reimbursement......................... 24
PAYOUT PERIOD................................ 25
Fixed Payout............................ 25
Variable Payout......................... 25
Combination Fixed and Variable Payout... 25
Payout Date............................. 25
Payout Options.......................... 25
Enhancements to Payout Options.......... 26
Payout Information...................... 26
SURRENDER OF ACCOUNT VALUE................... 27
When Surrenders are Allowed............. 27
Amount That May Be Surrendered.......... 27
Surrender Restrictions.................. 27
Partial Surrenders...................... 27
Systematic Withdrawals.................. 27
Distributions Required By Federal Tax
Law................................... 28
EXCHANGE PRIVILEGE........................... 29
Restrictions on Exchange Privilege...... 29
Taxes and Conversion Costs.............. 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Surrender Charge........................ 29
Exchange Offers for Contracts Other Than
Portfolio Director and Portfolio
Director 2............................ 29
Exchange Offer for Portfolio Director
and Portfolio Director 2.............. 30
Comparison of Contracts................. 30
Features of Portfolio Director 2........ 30
Agents' and Managers' Retirement Plan
Exchange Offer........................ 30
DEATH BENEFITS............................... 32
Beneficiary Information................. 32
Special Information for Individual
Non-Tax Qualified Contracts........... 32
During the Purchase Period.............. 32
Interest Guaranteed Death
Benefit.......................... 32
Standard Death Benefit............. 33
During the Payout Period................ 33
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS................. 34
Types of Investment Performance
Information Advertised................ 34
Total Return Performance
Information........................... 34
Standard Average Annual Total
Return................................ 34
Nonstandard Average Annual Total
Return................................ 34
Cumulative Total Return............... 34
Annual Change in Purchase Unit
Value................................. 34
Cumulative Change in Purchase Unit
Value.............................. 35
Total Return Based on Different
Investment Amounts................. 35
An Assumed Account Value of $10,000.. 35
Yield Performance Information........... 35
AGSPC Money Market Division........... 35
Divisions Other Than The AGSPC Money
Market Division.................... 35
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in
Purchase Unit Value Tables............ 35
OTHER CONTRACT FEATURES...................... 39
Changes That May Not Be Made............ 39
Change of Beneficiary................... 39
Contingent Owner........................ 39
Cancellation -- The 20 Day "Free
Look"................................. 39
We Reserve Certain Rights............... 39
Relationship to Employer's Plan......... 39
VOTING RIGHTS................................ 40
Who May Give Voting Instructions........ 40
Determination of Fund Shares
Attributable to Your Account.......... 40
During Purchase Period................ 40
During Payout Period or after a Death
Benefit Has Been Paid.............. 40
How Fund Shares Are Voted............... 40
FEDERAL TAX MATTERS.......................... 41
Type of Plans........................... 41
Tax Consequences in General............. 41
Effect of Tax-Deferred Accumulations.... 42
</TABLE>
(i)
<PAGE> 55
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 21
Annuitant 32
Assumed Investment Rate 25
Beneficiary 32
Contract Owner 32
Division 34
Fixed Account Options 32
Home Office 21
Mutual Fund or Fund 08
Participant 01
Participant Year 22
Payout Period 21
Payout Unit 25
Purchase Payments 19,34
Purchase Period 21
Purchase Unit 20
VALIC Separate Account A 40
Variable Account Options 09,32
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director 2,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director 2 will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director 2 except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director 2. This summary is called the "Profile of Portfolio Director
2." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 56
PROFILE OF PORTFOLIO DIRECTOR 2
- --------------------------------------------------------------------------------
Portfolio Director 2 is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director 2's major features is presented below. For a more detailed
discussion of Portfolio Director 2, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director 2 offers you a choice from among 18 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Stock Growth through investments tracking VALIC
EQUITY Index the S&P 500(R) Index
FUND Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY American Century -- Capital growth through American Century
FUNDS Twentieth Century investments in common
Ultra Fund stock
-----------------------------------------------------------------------------------------------------------
Founders Long-term growth of capital through Founders
Growth investment in common stock of well
Fund established, high quality growth companies
-----------------------------------------------------------------------------------------------------------
Neuberger&Berman Capital appreciation, and secondarily Neuberger&Berman
Guardian Trust current income by investing primarily Management Inc.
in common stocks of long-established,
high quality companies
-----------------------------------------------------------------------------------------------------------
Putnam Global Capital appreciation through a globally Putnam
Growth Fund diversified portfolio of common stocks
-----------------------------------------------------------------------------------------------------------
Putnam New Long-term capital appreciation Putnam
Opportunities Fund through investment in common stock
-----------------------------------------------------------------------------------------------------------
Putnam OTC & Capital appreciation through Putnam
Emerging Growth investments in common stocks of
Fund small-to-medium companies
-----------------------------------------------------------------------------------------------------------
Scudder Growth Long-term growth of capital, current Scudder
and Income Fund income and growth of income
-----------------------------------------------------------------------------------------------------------
Templeton Growth through investments Templeton
Foreign in companies and governments
Fund outside the U.S.
-----------------------------------------------------------------------------------------------------------
Vanguard/ Growth and income through Vanguard
Windsor II investment in common stock
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Vanguard/ Income and growth through 30 to 40% Vanguard
FUND Wellington investment in high quality corporate bonds
Fund and 60 to 70% investment in common stocks
- -------------------------------------------------------------------------------------------------------------------------------
INCOME AGSPC International Income and possible growth through VALIC
FUNDS Government investments in high quality foreign
Bond Fund government debt securities
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment Vanguard
Securities in long-term quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------
FIXED --
OPTIONS
---------------------
--
- -----------------------------------------
SUBADVISER
- -----------------------------------------
INDEX Bankers Trust
EQUITY
FUND
- -----------------------------------------
ACTIVELY T. Rowe Price
MANAGED
---------------------
EQUITY N/A
FUNDS
---------------------
N/A
---------------------
Neuberger&
Berman, LLC
---------------------
N/A
---------------------
N/A
---------------------
N/A
---------------------
N/A
---------------------
N/A
---------------------
N/A
- -----------------------------------------
BALANCED N/A
FUND
- -----------------------------------------
INCOME N/A
FUNDS
---------------------
N/A
---------------------
N/A
- -----------------------------------------
SPECIALTY T. Rowe Price
FUNDS
---------------------
N/A
- -----------------------------------------
MONEY N/A
MARKET
FUND
- -----------------------------------------
</TABLE>
2
<PAGE> 57
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director 2 offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director 2 offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director 2's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens
the surrender charge is computed in two ways and you are charged whichever
amount is less. The first amount is simply 5% of whatever amount you have
withdrawn. The second amount is 5% of the contributions you made to your account
during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 0.80% to 1.05% during the purchase period and 1.00%
to 1.25% during the payout period on the average daily net asset value of VALIC
Separate Account A. Reductions in the mortality and expense risk fee and
administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. For more information as to which Variable Account Options have a
Separate Account Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director 2 can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
3
<PAGE> 58
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT
EXPENSE RISK DISTRIBUTION EXPENSE TOTAL SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
AGSPC Growth 0.25% 0.55% -- 0.80%
AGSPC International Government Bond 0.25 0.55 -- 0.80
AGSPC Money Market 0.25 0.55 -- 0.80
AGSPC Science & Technology 0.25 0.55 -- 0.80
AGSPC Social Awareness 0.25 0.55 -- 0.80
AGSPC Stock Index 0.25 0.55 -- 0.80
American Century -- Twentieth
Century Ultra(4) 0.25 0.80 (0.21%) 0.84
Founders Growth(4) 0.25 0.80 (0.25) 0.80
Neuberger&Berman Guardian Trust(4) 0.25 0.80 (0.25) 0.80
Putnam Global Growth(4) 0.25 0.80 (0.25) 0.80
Putnam New Opportunities(4) 0.25 0.80 (0.25) 0.80
Putnam OTC & Emerging Growth(4) 0.25 0.80 (0.25) 0.80
Scudder Growth and Income(4) 0.25 0.80 (0.25) 0.80
Templeton Foreign(4) 0.25 0.80 (0.25) 0.80
Vanguard Fixed Income Securities
Fund --
Long-Term Corporate Portfolio 0.25 0.80 -- 1.05
Vanguard Fixed Income Securities
Fund --
Long-Term U.S. Treasury Portfolio 0.25 0.80 -- 1.05
Vanguard/Wellington 0.25 0.80 -- 1.05
Vanguard/Windsor II 0.25 0.80 -- 1.05
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES FEES EXPENSES(5) EXPENSES
---- ---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC International Government Bond 0.50 -- 0.06 0.56
AGSPC Money Market 0.50 -- 0.07 0.57
AGSPC Science & Technology 0.90 -- 0.06 0.96
AGSPC Social Awareness 0.50 -- 0.06 0.56
AGSPC Stock Index 0.27 -- 0.07 0.34
American Century -- Twentieth Century Ultra 1.00 -- 0.00 1.00
Founders Growth 0.71 0.25%(4) 0.23 1.19
Neuberger&Berman Guardian Trust(6) 0.84 -- 0.04 0.88
Putnam Global Growth 0.65 0.25(4) 0.37 1.27
Putnam New Opportunities 0.50 0.25(4) 0.31 1.06
Putnam OTC & Emerging Growth 0.56 0.25(4) 0.35 1.16
Scudder Growth and Income 0.49 -- 0.29 0.78
Templeton Foreign 0.61 0.25(4) 0.22 1.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio 0.03 -- 0.25 0.28
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio 0.01 -- 0.24 0.25
Vanguard/Wellington 0.04 -- 0.27 0.31
Vanguard/Windsor II 0.13 -- 0.26 0.39
</TABLE>
See footnotes on page 6.
4
<PAGE> 59
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $17 $ 52 $ 90 $197
AGSPC International Government Bond Division
13 14 43 75 164
AGSPC Money Market Division 6 14 43 75 165
AGSPC Science & Technology Division 17 18 55 96 208
AGSPC Social Awareness Division 12 14 43 75 164
AGSPC Stock Index Division 10 12 36 63 139
American Century -- Twentieth Century Ultra
Division 31 19 58 100 216
Founders Growth Division 30 20 62 107 232
Neuberger&Berman Guardian Trust
Division 29 17 53 91 199
Putnam Global Growth Division 28 21 65 111 240
Putnam New Opportunities Division 26 19 59 101 218
Putnam OTC & Emerging Growth Division 27 20 62 106 229
Scudder Growth and Income Division 21 16 50 86 188
Templeton Foreign Division 32 19 59 102 221
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 14 42 73 161
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio Division
23 13 41 71 157
Vanguard/Wellington Division 25 14 43 75 164
Vanguard/Windsor II Division 24 15 46 79 173
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $18 $ 55 $ 94 $205
AGSPC International Government Bond Division
13 15 45 78 172
AGSPC Money Market Division 6 15 46 79 173
AGSPC Science & Technology Division 17 19 58 99 215
AGSPC Social Awareness Division 12 15 45 78 172
AGSPC Stock Index Division 10 12 38 67 147
American Century -- Twentieth Century Ultra
Division 31 19 60 103 224
Founders Growth Division 30 21 65 111 240
Neuberger&Berman Guardian Trust
Division 29 18 55 95 207
Putnam Global Growth Division 28 22 67 115 248
Putnam New Opportunities Division 26 20 61 104 226
Putnam OTC & Emerging Growth Division 27 21 64 109 236
Scudder Growth and Income Division 21 17 52 90 196
Templeton Foreign Division 32 20 61 105 228
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 14 44 77 169
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio Division
23 14 43 75 165
Vanguard/Wellington Division 25 15 45 78 172
Vanguard/Windsor II Division 24 15 48 83 181
</TABLE>
5
<PAGE> 60
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $64 $104 $144 $205
AGSPC International Government Bond Division 13 61 95 128 172
AGSPC Money Market Division 6 61 96 129 173
AGSPC Science & Technology Division 17 65 107 149 215
AGSPC Social Awareness Division 12 61 95 128 172
AGSPC Stock Index Division 10 59 88 117 147
American Century -- Twentieth Century Ultra
Division 31 66 109 153 224
Founders Growth Division 30 67 114 161 240
Neuberger&Berman Guardian Trust
Division 29 64 105 145 207
Putnam Global Growth Division 28 68 116 165 248
Putnam New Opportunities Division 26 66 110 154 226
Putnam OTC & Emerging Growth Division 27 67 113 159 236
Scudder Growth and Income Division 21 63 102 140 196
Templeton Foreign Division 32 66 111 155 228
Vanguard Fixed Income Securities Fund -- Long-
Term Corporate Portfolio Division 22 61 94 127 169
Vanguard Fixed Income Securities Fund -- Long-
Term U.S. Treasury Portfolio Division 23 61 93 125 165
Vanguard/Wellington Division 25 61 95 128 172
Vanguard/Windsor II Division 24 62 98 133 181
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) The mortality and expense risk fee and administration and distribution fee
reflected in the Fee Table is deducted during the Purchase Period. The
mortality and expense risk fee and administration and distribution fee
deducted during the Payout Period is computed at an annualized rate of 1.00%
to 1.25%, depending upon the Variable Account Option selected.
(4) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to these Divisions are reduced by an amount equal to payments from the
underlying Fund and/or its affiliate for administrative and shareholder
services provided by the Company. See "Fees and Charges -- Separate Account
Expense Reimbursement" in this prospectus for more information.
The following Funds and/or their affiliates pay administrative, shareholder
service or distribution fees to the Company: American Century -- Twentieth
Century (0.21%), Founders (0.25%), Neuberger&Berman (0.25%), Putnam (0.25%),
Scudder (0.25%) and Templeton (0.25%). With respect to American
Century -- Twentieth Century Ultra Fund, the Fund pays fees to the Company
of 0.20% on assets in excess of $0 but less than $75 million, and 0.25% on
assets in excess of $75 million.
(5) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(6) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies to, and as part of
a "master/feeder structure" invests in, the same portfolio as
Neuberger&Berman Guardian Fund ("Fund"), which is also managed by
Neuberger&Berman Management Incorporated ("N&B"). N&B voluntarily bears
certain expenses of the Trust so that the Trust's expense ratio per annum
will not exceed the expense ratio per annum of the Fund by more than 0.10%
of the Trust's average daily net assets. This arrangement can be terminated
on sixty days' notice.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 61
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
Portfolio Director 2 Series 2.1.20 to 2.12.20 is a new variable annuity product;
therefore, there is no Selected Purchase Unit Data available at this time.
7
<PAGE> 62
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR 2
Portfolio Director 2 was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director 2 can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director 2 will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
2 called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director 2.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director 2. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director 2's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director 2. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Eighteen
Divisions are available and represent the Variable Account Options in Portfolio
Director 2. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director 2. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director 2. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director 2, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director 2, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director 2 be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director 2. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR 2
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
8
<PAGE> 63
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director 2 enables you to participate in Divisions that represent
eighteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Twelve of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director 2 and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 6 funds, for which VALIC serves as investment
adviser.
- - American Century Investments -- offers 1 fund for which American Century
Investment Management, Inc. serves as investment adviser.
- - Founders Funds, Inc. -- offers 1 fund for which Founders Asset Management,
Inc. serves as investment adviser.
- - Neuberger&Berman Management Inc. -- offers 1 fund for which Neuberger&Berman
Management Inc. serves as investment manager and Neuberger&Berman LLC, serves
as sub-adviser.
- - Putnam Investments -- offers 3 funds for which Putnam Investment Management
Inc., serves as investment adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - Templeton Funds Inc. -- offers 1 fund for which Templeton Global Advisors
Limited serves as investment adviser.
- - The Vanguard Group Inc. -- offers 4 funds for which Barrow, Hanley, Mewhinney
& Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management,
Inc., Vanguard Core Management Group, Wellington Management Company, LLP and
Vanguard Fixed Income Group serve as investment advisers.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified Fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the change in an Account Value of an
assumed $10,000 investment in each of the Divisions is shown in both table and
graph form. This will reflect a deduction for separate account fees (mortality
and expense risk fees plus administration and distribution fees minus any
applicable reimbursements) and underlying fund charges. This will not reflect
any deduction for account maintenance fees, surrender charges and premium taxes.
These charges would further reduce your return. The Account Values shown reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. For more information about how these returns were calculated
including a statement of the charges reflected and tables showing historical
performance information see "How to Review Investment Performance of Separate
Account Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director 2.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
9
<PAGE> 64
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<C> <C>
04/29/94 $10,000
09/30/94 10,047
09/30/95 13,961
09/30/96 17,078
09/30/97 20,821
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<C> <C>
10/01/91 $10,000
09/30/92 12,019
09/30/93 12,641
09/30/94 13,060
09/30/95 15,113
09/30/96 15,626
09/30/97 15,356
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED SEPTEMBER 30
10
<PAGE> 65
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 10,515
09/30/89 11,374
09/30/90 12,187
09/30/91 12,854
09/30/92 13,229
09/30/93 13,478
09/30/94 13,808
09/30/95 14,441
09/30/96 15,057
09/30/97 15,700
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<C> <C>
04/29/94 $10,000
09/30/94 11,327
09/30/95 19,500
09/30/96 22,679
09/30/97 26,376
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED SEPTEMBER 30
11
<PAGE> 66
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<C> <C>
10/02/89 $10,000
09/30/90 9,007
09/30/91 11,360
09/30/92 12,105
09/30/93 13,847
09/30/94 13,589
09/30/95 17,556
09/30/96 21,212
09/30/97 29,391
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,590
09/30/89 11,082
09/30/90 9,922
09/30/91 12,718
09/30/92 13,911
09/30/93 15,577
09/30/94 15,893
09/30/95 20,410
09/30/96 24,316
09/30/97 33,830
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
12
<PAGE> 67
AMERICAN CENTURY --
TWENTIETH CENTURY ULTRA
FUND
Investor Class Shares
(Division 31)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital growth. The Fund invests primarily in common stocks that are
considered to have better-than-average prospects for appreciation.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,167
09/30/89 11,868
09/30/90 10,321
09/30/91 18,821
09/30/92 18,891
09/30/93 28,019
09/30/94 25,511
09/30/95 35,858
09/30/96 39,466
09/30/97 50,307
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
FOUNDERS GROWTH FUND
(Division 30)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital. Fund invests primarily in common stocks of
well established, high-quality growth companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,260
09/30/89 12,339
09/30/90 9,931
09/30/91 13,227
09/30/92 13,692
09/30/93 19,675
09/30/94 18,933
09/30/95 26,085
09/30/96 30,704
09/30/97 40,015
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
13
<PAGE> 68
NEUBERGER&BERMAN
GUARDIAN TRUST*
(Division 29)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation and, secondarily, current income. The Trust invests
primarily in common stocks of long-established, high quality companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,682
09/30/89 12,187
09/30/90 9,955
09/30/91 13,688
09/30/92 15,871
09/30/93 18,984
09/30/94 19,974
09/30/95 26,204
09/30/96 27,830
09/30/97 38,348
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
PUTNAM GLOBAL GROWTH
FUND
Class A Shares (Division 28)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. Current income is only an incidental consideration
in selecting investments for the Fund. The Fund is designed for investors
seeking above-average capital growth potential through a globally diversified
portfolio of common stocks. Dividend and interest income is only an incidental
consideration.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,149
09/30/89 10,370
09/30/90 9,254
09/30/91 11,219
09/30/92 11,190
09/30/93 13,616
09/30/94 14,937
09/30/95 16,150
09/30/96 18,382
09/30/97 22,936
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger& Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
14
<PAGE> 69
PUTNAM NEW OPPORTUNITIES
FUND
Class A Shares
(Division 26)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. Current income is only an incidental
consideration. The Fund invests principally in common stocks of companies in
sectors of the economy which the Fund's investment adviser believes possess
above-average long-term growth potential.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<C> <C>
08/31/90 $10,000
09/30/90 9,164
09/30/91 16,207
09/30/92 18,185
09/30/93 28,700
09/30/94 30,448
09/30/95 42,027
09/30/96 52,649
09/30/97 59,798
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED SEPTEMBER 30
PUTNAM OTC & EMERGING
GROWTH FUND
Class A Shares
(Division 27)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. The Fund invests primarily in common stocks traded
in the over-the-counter ("OTC") market and common stocks, of "emerging growth"
companies listed on securities exchanges. The Fund is designed for investors
willing to assume above-average risk in return for above average capital growth
potential. The Fund may trade securities for short-term profits.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,696
09/30/89 11,621
09/30/90 8,870
09/30/91 12,662
09/30/92 13,595
09/30/93 19,840
09/30/94 20,244
09/30/95 29,557
09/30/96 37,122
09/30/97 39,535
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
15
<PAGE> 70
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 8,818
09/30/89 11,590
09/30/90 10,226
09/30/91 12,975
09/30/92 14,456
09/30/93 17,038
09/30/94 18,219
09/30/95 21,561
09/30/96 25,630
09/30/97 35,628
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
TEMPLETON FOREIGN FUND
Class I Shares
(Division 32)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through a flexible policy of investing in stocks
and debt obligations of companies and governments outside the United States. Any
income realized will be incidental.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,479
09/30/89 12,218
09/30/90 12,460
09/30/91 14,368
09/30/92 14,865
09/30/93 17,718
09/30/94 20,571
09/30/95 21,750
09/30/96 23,751
09/30/97 29,402
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
16
<PAGE> 71
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade corporate and government bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 11,506
09/30/89 12,908
09/30/90 13,137
09/30/91 15,679
09/30/92 18,074
09/30/93 20,741
09/30/94 19,077
09/30/95 22,645
09/30/96 23,033
09/30/97 25,825
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests at least 85% of its assets in long-term
securities backed by the full faith and credit of the U.S. Government. Also, at
least 65% of the Fund assets will be invested in U.S. Treasury bills, notes and
bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 11,462
09/30/89 13,011
09/30/90 13,077
09/30/91 15,604
09/30/92 17,408
09/30/93 20,662
09/30/94 18,383
09/30/95 22,290
09/30/96 22,377
09/30/97 24,891
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
17
<PAGE> 72
VANGUARD/WELLINGTON FUND
Institutional Class Shares
(Division 25)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks conservation of principal, a reasonable income return, and profits without
undue risk.
This Fund seeks relative capital stability, a reasonable level of income, and
the potential for capital appreciation. By balancing its investments among
common stocks and bonds, the Fund is expected to provide lower investment risk
and share price volatility (and a lower return in the long run) than a mutual
fund which invests exclusively in common stocks.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,866
09/30/89 11,922
09/30/90 10,801
09/30/91 13,458
09/30/92 14,842
09/30/93 16,772
09/30/94 17,079
09/30/95 20,934
09/30/96 23,900
09/30/97 30,193
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
VANGUARD/WINDSOR II
Institutional Class Shares
(Division 24)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and income by investing primarily
in common stocks. The Fund's secondary objective is to provide current income.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<C> <C>
09/30/87 $10,000
09/30/88 9,539
09/30/89 12,425
09/30/90 10,057
09/30/91 13,215
09/30/92 15,003
09/30/93 17,408
09/30/94 17,408
09/30/95 22,106
09/30/96 26,387
09/30/97 36,211
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
18
<PAGE> 73
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director 2 account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director 2 was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment accompanies an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will take one of the following
actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on which the
values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
19
<PAGE> 74
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 20 investment options offered in Portfolio Director 2. This includes 2
Fixed Account Options and 18 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 20 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director 2 Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options (including
applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director 2 account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
20
<PAGE> 75
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director 2 without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director 2's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director 2's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
-------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
-------------- ----------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable Up to 100% Once every 365 days None
Payout: of money in
variable
option
payout
Fixed: Not -- --
permitted
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
21
<PAGE> 76
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director 2, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director 2 is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
22
<PAGE> 77
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director 2 is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an aggregate annualized rate of 0.80% to 1.05% during the Purchase Period and
1.00% to 1.25% during the Payout Period on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director 2,
no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee, and
administration and distribution fee see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
23
<PAGE> 78
- --------------------------------------------------------------------------------
REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender charges, mortality and expense risk fee or administration and
distribution fee for Portfolio Director 2 may be reduced or waived. We may
reduce or waive these fees and charges if we determine that your retirement
program will allow us to reduce or eliminate administrative or sales expenses
that we usually incur for retirement programs. There are a number of factors we
will review in determining whether your retirement program will allow us to
reduce or eliminate these administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method
of remitting Purchase Payments, reduce administrative costs.
We review to following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow
us to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense fee or administration and distribution fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. See the Fee Table in this prospectus for an identification of those
Funds for which a reimbursement applies.
24
<PAGE> 79
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment
experience of the Variable Account Option is lower than your Assumed Investment
Rate, your next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
25
<PAGE> 80
- --------------------------------------------------------------------------------
- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
26
<PAGE> 81
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<C> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<C> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director 2. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No
27
<PAGE> 82
- --------------------------------------------------------------------------------
more than one systematic withdrawal election may be in effect at any one time.
We reserve the right to discontinue any or all systematic withdrawals or to
change its terms, at any time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director 2 Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
28
<PAGE> 83
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director 2. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director 2. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director 2 to other contract forms are not
permitted (Exchanges between Portfolio Director 2 and other contracts in the
Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director 2. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director 2. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director 2.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director 2.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director 2 will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director 2, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director 2 will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director 2.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director 2 for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director 2 surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
29
<PAGE> 84
- --------------------------------------------------------------------------------
Portfolio Director 2 will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director to
Portfolio Director 2. You may also exchange from Portfolio Director 2 to
Portfolio Director. Additionally, you may also make exchanges among the series
of Portfolio Director 2. Once you have made any of the exchanges described in
this paragraph you must wait 120 days before making another exchange between
Portfolio Director and Portfolio Director 2.
Both Portfolio Director and Portfolio Director 2 are available to qualified
contracts and certain non-qualified contracts. Portfolio Director 2 is not
available to non-qualified contracts issued to individuals. Please read the
"Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director 2.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director 2. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director 2 is provided in the Statement of Additional Information.
Portfolio Director and Portfolio Director 2 contain the same provisions except
as to the level of fees and as to available Variable Account Options and certain
Separate Account Expense Reimbursements. See "Fees and Changes" in this
prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
FEATURES OF PORTFOLIO DIRECTOR 2
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director 2.
- Portfolio Director 2 has more investment options to select from.
- Portfolio Director 2 has 12 publicly available mutual funds as investment
options.
- The Portfolio Director 2 surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director 2 has an Interest Guaranteed Death Benefit.
- Portfolio Director 2's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Different series of Portfolio Director 2 may charge fees higher or lower
than other series of Portfolio Director 2.
- Portfolio Director 2's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts, Independence Plus Contracts
and Portfolio Director for the equivalent units of interest in Portfolio
Director 2.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director 2 any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director 2 from SA-1,
Independence Plus or Portfolio Director Contracts may have surrender charges and
account maintenance fees imposed under Portfolio Director 2. All other
provisions with regard to exchange offers referenced in the section entitled
"Exchange Offers" will apply to the Agents' and Managers' Retirement Plan
Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will have
three options to choose from. As to the funding vehicle for
30
<PAGE> 85
- --------------------------------------------------------------------------------
their purchase payment plan, the participant may choose to:
- Remain in the SA-1 Contract, Independence Plus Contract or Portfolio
Director.
- Leave current assets in the SA-1 Contract, Independence Plus or Portfolio
Director and direct future Purchase Payments to Portfolio Director 2; or
- Transfer all current assets and future Purchase Payments to Portfolio
Director 2.
If the participant chooses to remain in either the SA-1 Contract, Independence
Plus Contract or Portfolio Director, future Purchase Payments and current assets
will be controlled by the provisions of the SA-1 Contract, Independence Plus
Contract or Portfolio Director, respectively. If the participant chooses to
leave current assets in the SA-1 Contract, the Independence Plus Contract or
Portfolio Director and direct future Purchase Payments to Portfolio Director 2,
the current assets will be controlled by the provisions of the SA-1 Contract,
the Independence Plus Contract or Portfolio Director, respectively. The future
Purchase Payments will be controlled by the terms of Portfolio Director 2
subject to the exception that surrender charges and account maintenance fees
will not be imposed under Portfolio Director 2. If the participant chooses to
transfer all current assets and future Purchase Payments to Portfolio Director
2, such current assets and future Purchase Payments will be controlled by the
provisions of Portfolio Director 2 subject to the exception that surrender
charges and account maintenance fees will not be imposed under Portfolio
Director 2.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 2 the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. Exchanges to Portfolio Director will be
permitted. See "Exchange Offer for Portfolio Director and Portfolio Director 2"
in this prospectus. If a participant chooses to transfer future Purchase
Payments but not current assets to Portfolio Director 2, the participant will be
allowed at a later date to transfer the current assets to Portfolio Director 2.
For a complete analysis of the differences between the SA-1 contract, the
Independence Plus Contract or Portfolio Director and Portfolio Director 2, you
should refer to the Statement of Additional Information and the form of the
contract or certificate for its terms and conditions.
31
<PAGE> 86
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director 2 will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director 2 may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director 2.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the
Contingent Owner, if any, or to the Contract Owner's estate. Such transfers will
be considered a taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (MINUS)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (PLUS)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director 2 are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director 2. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
32
<PAGE> 87
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STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director 2 are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
Under federal tax laws if the Life with Guaranteed Periods Option is chosen on a
variable basis, it may be treated in the same manner as a surrender of your
Portfolio Director 2 account. If your account is surrendered the full amount
your Beneficiary receives will normally be treated as income for that year. This
amount generally will also be taxed at rates used for ordinary income.
33
<PAGE> 88
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director 2 was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director 2 in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the
Division. This will include account maintenance fees and surrender charges that
would have been deducted if you surrendered Portfolio Director 2 at the end of
each period shown. Premium taxes are not deducted. This information is
calculated for each Division based on how an initial assumed payment of $1,000
performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director 2 will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director 2. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
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<PAGE> 89
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CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director 2 charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual changes in the Purchase Unit Value based on an initial
investment of $10,000. This will not reflect any deduction for account
maintenance fees, surrender charges and premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. The 7-day Current Yield for the last 7 days ended
September 30, 1997 was 4.32%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. The 7-day Effective Yield for the last 7 days ended September 30, 1997
was 4.40%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director 2 of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance information presented in the following tables reflects the
performance of the underlying Fund after deduction of a mortality and expense
risk fee and administration and distribution fee at an aggregate annualized rate
of 0.80% to 1.05% during the Purchase Period on the daily net asset value of
VALIC Separate Account A. The exact rate depends upon the Variable Account
Option selected.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
35
<PAGE> 90
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)................... 04/29/94 22.84% -- -- 26.33% 16.82%
AGSPC International Government Bond (Division
13)........................................ 10/01/91 7.28 -- 4.06% 3.92 (6.22)
AGSPC Money Market (Division 6).............. 01/16/86 -- 4.49% 2.48 2.71 (0.49)
AGSPC Science & Technology (Division 17)..... 04/29/94 31.82 -- -- 31.45 11.22
AGSPC Social Awareness (Division 12)......... 10/02/89 14.28 -- 18.78 28.18 33.46
AGSPC Stock Index (Division 10).............. 04/20/87 -- 12.82 18.82 27.49 34.02
American Century -- Twentieth Century Ultra
(Division 31).............................. 11/02/81 -- 17.44 21.08 24.23 22.38
Founders Growth (Division 30)................ 01/05/62 -- 14.78 23.39 27.21 25.23
Neuberger&Berman Guardian Trust (Division
29)(1)..................................... 06/01/50 -- 14.29 18.70 23.10 32.69
Putnam Global Growth (Division 28)........... 09/01/67 -- 8.57 14.77 14.01 19.68
Putnam New Opportunities (Division 26)....... 08/31/90 28.58 -- 26.39 24.05 8.49
Putnam OTC & Emerging Growth (Division 27)... 11/01/82 -- 14.64 23.27 23.82 1.63
Scudder Growth and Income (Division 21)(2)... 11/13/84 -- 13.45 19.18 23.87 33.90
Templeton Foreign (Division 32).............. 10/05/82 -- 11.30 13.93 11.22 18.70
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)........................................ 07/09/73 -- 9.86 6.55 9.16 7.08
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23)........................................ 05/19/86 -- 9.46 6.56 9.16 6.15
Vanguard/Wellington (Division 25)............ 07/01/29 -- 11.59 14.59 19.66 21.24
Vanguard/Windsor II (Division 24)............ 06/24/85 -- 13.64 18.67 26.52 32.13
</TABLE>
- ---------------
* The returns shown are since inception of the underlying Funds that have been
in existence for less than ten years.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
(1) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on May 31, 1929.
36
<PAGE> 91
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)..................... 04/29/94 23.87% -- -- 27.49% 21.91%
AGSPC International Government Bond
(Division 13)................................ 10/01/91 7.40 -- 5.02% 5.55 (1.72)
AGSPC Money Market (Division 6)................ 01/16/86 -- 4.61% 3.48 4.37 4.27
AGSPC Science & Technology (Division 17)....... 04/29/94 32.73 -- -- 32.54 16.30
AGSPC Social Awareness (Division 12)........... 10/02/89 14.42 -- 19.41 29.32 38.56
AGSPC Stock Index (Division 10)................ 04/20/87 -- 12.96 19.45 28.64 39.13
American Century -- Twentieth Century Ultra
(Division 31)................................ 11/02/81 -- 17.53 21.64 25.40 27.47
Founders Growth (Division 30).................. 01/05/62 -- 14.87 23.92 28.33 30.33
Neuberger&Berman Guardian Trust (Division
29)(1)....................................... 06/01/50 -- 14.39 19.30 24.29 37.79
Putnam Global Growth (Division 28)............. 09/01/67 -- 8.66 15.44 15.37 24.77
Putnam New Opportunities (Division 26)......... 08/31/90 28.69 -- 26.88 25.23 13.58
Putnam OTC & Emerging Growth (Division 27)..... 11/01/82 -- 14.74 23.80 24.99 6.50
Scudder Growth and Income (Division 21)........ 11/13/84 -- 13.55 19.77 25.05 39.01
Templeton Foreign (Division 32)................ 10/05/82 -- 11.39 14.62 12.64 23.79
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22).......................................... 07/09/73 -- 9.95 7.40 10.62 12.12
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23).......................................... 05/19/86 -- 9.55 7.41 10.63 11.23
Vanguard/Wellington (Division 25).............. 07/01/29 -- 11.68 15.26 20.91 26.33
Vanguard/Windsor II (Division 24).............. 06/24/85 -- 13.73 19.27 27.65 37.23
</TABLE>
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15).................. 04/29/94 108.21% -- -- 107.23% 21.91%
AGSPC International Government Bond
(Division 13)............................. 10/01/91 53.56 -- 27.77% 17.59 (1.72)
AGSPC Money Market (Division 6)............. 01/16/86 -- 57.00% 18.68 13.70 4.27
AGSPC Science & Technology (Division 17).... 04/29/94 163.76 -- -- 132.85 16.30
AGSPC Social Awareness (Division 12)........ 10/02/89 193.91 -- 142.80 116.27 38.56
AGSPC Stock Index (Division 10)............. 04/20/87 -- 238.30 143.18 112.86 39.13
American Century -- Twentieth Century Ultra
(Division 31)............................. 11/02/81 -- 403.07 166.30 97.20 27.47
Founders Growth (Division 30)............... 01/05/62 -- 300.14 192.25 111.35 30.33
Neuberger&Berman Guardian Trust (Division
29)(1).................................... 06/01/50 -- 283.48 141.63 91.99 37.79
Putnam Global Growth (Division 28).......... 09/01/67 -- 129.36 104.98 53.55 24.77
Putnam New Opportunities (Division 26)...... 08/31/90 497.97 -- 228.84 96.39 13.58
Putnam OTC & Emerging Growth (Division
27)....................................... 11/01/82 -- 295.34 190.82 95.29 6.50
Scudder Growth and Income (Division 21)..... 11/13/84 -- 256.28 146.46 95.55 39.01
Templeton Foreign (Division 32)............. 10/05/82 -- 194.02 97.80 42.93 23.79
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)....................................... 07/09/73 -- 158.25 42.88 35.37 12.12
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................. 05/19/86 -- 148.91 42.99 35.41 11.23
Vanguard/Wellington (Division 25)........... 07/01/29 -- 201.93 103.43 76.78 26.33
Vanguard/Windsor II (Division 24)........... 06/24/85 -- 262.12 141.37 108.01 37.23
</TABLE>
- ---------------
* The returns shown are since inception of the underlying Funds that have been
in existence for less than ten years.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
37
<PAGE> 92
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE
12 MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... 21.91% 22.33% 38.96% 0.47% --
AGSPC International Government Bond
(Division 13)*........................... (1.72) 3.39 15.73 3.31 5.18%
AGSPC Money Market (Division 6)........... 4.27 4.26 4.59 2.44 1.89
AGSPC Science & Technology (Division
17)*..................................... 16.30 16.30 72.15 13.27 --
AGSPC Social Awareness (Division 12)*..... 38.56 20.83 29.19 (1.86) 14.40
AGSPC Stock Index (Division 10)........... 39.12 19.14 28.42 2.03 11.97
American Century -- Twentieth Century
Ultra (Division 31)...................... 27.47 10.06 40.56 (8.95) 48.32
Founders Growth (Division 30)............. 30.33 17.71 37.77 (3.77) 43.70
Neuberger&Berman Guardian Trust (Division
29)...................................... 37.79 6.21 31.19 5.21 19.62
Putnam Global Growth (Division 28)........ 24.77 13.82 8.12 9.70 21.69
Putnam New Opportunities (Division 26)*... 13.58 25.27 38.03 6.09 57.82
Putnam OTC & Emerging Growth (Division
27)...................................... 6.50 25.59 46.00 2.03 45.94
Scudder Growth and Income (Division 21)... 39.01 18.88 18.34 6.93 17.86
Templeton Foreign (Division 32)........... 23.79 9.20 5.73 16.10 19.19
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 12.12 1.71 18.70 (8.02) 14.75
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 11.23 0.39 21.25 (11.03) 18.69
Vanguard/Wellington (Division 25)......... 26.33 14.17 22.57 1.83 13.00
Vanguard/Windsor II (Division 24)......... 37.23 19.37 26.98 0.00 16.04
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE
12 MONTHS ENDED SEPTEMBER 30
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ------------------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... -- -- -- -- --
AGSPC International Government Bond
(Division 13)*........................... 20.19% -- -- -- --
AGSPC Money Market (Division 6)........... 2,92 5.47% 7.15% 8.17% 5.15%
AGSPC Science & Technology (Division
17)*..................................... -- -- -- -- --
AGSPC Social Awareness (Division 12)*..... 6.56 26.11 (9.93) -- --
AGSPC Stock Index (Division 10)........... 9.39 28.18 (10.47) 29.00 (14.10)
American Century -- Twentieth Century
Ultra (Division 31)...................... 0.37 82.36 (13.03) 45.31 (18.33)
Founders Growth (Division 30)............. 3.52 33.19 (19.51) 49.38 (17.40)
Neuberger&Berman Guardian Trust (Division
29)...................................... 15.94 37.50 (18.31) 25.86 (3.18)
Putnam Global Growth (Division 28)........ (0.26) 21.23 (10.76) 27.25 (18.51)
Putnam New Opportunities (Division 26)*... 12.21 76.86 (8.36) -- --
Putnam OTC & Emerging Growth (Division
27)...................................... 7.37 42.75 (23.68) 33.64 (13.04)
Scudder Growth and Income (Division 21)... 11.41 26.88 (11.77) 31.44 (11.82)
Templeton Foreign (Division 32)........... 3.46 15.31 1.98 28.90 (5.21)
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 15.27 19.35 1.78 12.19 15.06
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 11.56 19.33 0.50 13.51 14.62
Vanguard/Wellington (Division 25)......... 10.28 24.60 (9.40) 20.84 (1.35)
Vanguard/Windsor II (Division 24)......... 13.53 31.40 (19.05) 30.25 (4.61)
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR
EACH PERIOD SINCE 09/30/87
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... 108.21% 70.78% 39.61% 0.47% --
AGSPC International Government Bond
(Division 13)*........................... 53.56 56.26 51.13 30.60 26.41%
AGSPC Money Market (Division 6)........... 57.00 50.57 44.41 38.08 34.78
AGSPC Science & Technology (Division
17)*..................................... 163.76 126.79 95.00 13.27 --
AGSPC Social Awareness (Division 12)*..... 193.91 112.12 75.56 35.89 38.47
AGSPC Stock Index (Division 10)........... 238.30 143.16 104.10 58.93 55.77
American Century -- Twentieth Century
Ultra (Division 31)...................... 403.07 294.66 258.58 155.11 180.19
Founders Growth (Division 30)............. 300.15 207.04 160.85 89.33 96.75
Neuberger&Berman Guardian Trust (Division
29)...................................... 283.48 178.30 162.04 99.74 89.84
Putnam Global Growth (Division 28)........ 129.36 83.82 61.50 49.37 36.16
Putnam New Opportunities (Division 26)*... 497.98 426.49 320.27 204.48 187.00
Putnam OTC & Emerging Growth (Division
27)...................................... 295.35 271.22 195.57 102.44 98.40
Scudder Growth and Income (Division 21)... 256.28 156.30 115.61 82.19 70.38
Templeton Foreign (Division 32)........... 194.02 137.51 117.50 105.71 77.18
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 158.25 130.33 126.45 90.77 107.41
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 148.91 123.77 122.90 83.83 106.62
Vanguard/Wellington (Division 25)......... 201.93 139.00 109.34 70.79 67.72
Vanguard/Windsor II (Division 24)......... 262.11 163.87 121.06 74.08 74.08
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR
EACH PERIOD END SINCE 09/30/87
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ------------------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... -- -- -- -- --
AGSPC International Government Bond
(Division 13)*........................... 20.19% -- -- -- --
AGSPC Money Market (Division 6)........... 32.29 28.54% 21.87% 13.74% 5.15%
AGSPC Science & Technology (Division
17)*..................................... -- -- -- -- --
AGSPC Social Awareness (Division 12)*..... 21.05 13.60 (9.93) -- --
AGSPC Stock Index (Division 10)........... 39.11 27.18 (0.78) 10.82 (14.10)
American Century -- Twentieth Century
Ultra (Division 31)...................... 88.91 88.21 3.21 18.68 (18.33)
Founders Growth (Division 30)............. 36.92 32.27 (0.69) 23.39 (17.40)
Neuberger&Berman Guardian Trust (Division
29)...................................... 58.71 36.88 (0.45) 21.87 (3.18)
Putnam Global Growth (Division 28)........ 11.90 12.19 (7.46) 3.70 (18.51)
Putnam New Opportunities (Division 26)*... 81.85 62.07 (8.36) -- --
Putnam OTC & Emerging Growth (Division
27)...................................... 35.95 26.62 (11.30) 16.21 (13.04)
Scudder Growth and Income (Division 21)... 44.56 29.75 2.26 15.90 (11.82)
Templeton Foreign (Division 32)........... 48.65 43.68 24.60 22.18 (5.21)
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 80.74 56.79 31.37 29.08 15.06
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 74.08 56.04 30.77 30.11 14.62
Vanguard/Wellington (Division 25)......... 48.42 34.58 8.01 19.22 (1.35)
Vanguard/Windsor II (Division 24)......... 50.03 32.15 0.57 24.25 (4.61)
</TABLE>
- ------------
* For the year in which the underlying Fund commenced operations, less than a
full year's performance has been reflected, which is not annualized.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
38
<PAGE> 93
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director 2 may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director 2 in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
39
<PAGE> 94
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director 2
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director 2
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
40
<PAGE> 95
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director 2 provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director 2 is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 unfunded deferred compensation plans of governmental and
tax-exempt employers;
- Section 408(k) simplified deferred
compensation plans of private
employers.
The foregoing Contracts are "Qualified Contracts." Certain series of Portfolio
Director 2 may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director 2 is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers. TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director 2 can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director 2 is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the amount by which
a distribution exceeds investment in the Contract is subject to income tax. For
annuity payments, investment in the contract is recovered ratably over the
expected payout period. Special recovery rules might apply in certain
situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code
41
<PAGE> 96
- --------------------------------------------------------------------------------
Section 817(h)) which specifically exempts these Qualified Contracts, and the
IRS has no viable legal basis or reason to apply the theory of the 1981 ruling
to these Qualified Contracts under current law. In any event, were the IRS to
challenge the deferred tax treatment of these Qualified Contracts under the
theory of the 1981 ruling, VALIC and its tax counsel believe that Contract
owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director 2 Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (0.80% - 1.05% during the purchase period and 1%-1.25% during the
payout period) and may also incur account maintenance fees ($3.75 per quarter)
and surrender charges (5% of the lesser of all contributions received during the
last 60 months or the amount withdrawn). The dotted lines represent the amounts
remaining after withdrawal and payment of taxes and any surrender charge. An
additional 10% tax penalty may apply to withdrawals before age 59 1/2. This
information is for illustrative purposes only and is not a guarantee of future
return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent annual fixed yield of 5.76% under a conventional
savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE REDUCED BY THE
IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary depending upon the
timing of withdrawals. The previous chart represents (without factoring in fees
and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by
42
<PAGE> 97
- --------------------------------------------------------------------------------
comparing a pre-tax contribution to a tax-favored retirement plan with an
after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount
available for
savings before
federal taxes...... $2,500 $2,500
Current federal
income tax due on
Purchase
Payments........... 0 (700)
Net retirement plan
Purchase
Payments........... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes on $2,500 contributed to the conventional savings
account remains in the tax-qualified program, subject to being taxed upon
withdrawal. Stated otherwise, to reach an annual retirement savings goal of
$2,500, the contribution to a tax-qualified retirement program results in a
current out-of-pocket expense of $1,800 while the contribution to a conventional
savings account requires the full $2,500 out-of-pocket expense. The
tax-qualified retirement program represented in this chart is a plan type, such
as one under Section 403(b) of the Code, which allows participants to exclude
contributions within limits, from gross income.
43
<PAGE> 98
(This page intentionally left blank)
<PAGE> 99
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
Participant/Contract Owner Signature Date
Mail this form to any Regional Office (see the last page of your prospectus for addresses) or to the Home
Office at the following address: VALIC, Customer Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
</TABLE>
45
<PAGE> 100
(This page intentionally left blank)
<PAGE> 101
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
Address: Policy #
Social Security Number:
- -------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 102
(This page intentionally left blank)
<PAGE> 103
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information.................................
Marketing Information...........................
Endorsements and Published Ratings..............
Types of Variable Annuity Contracts.................
Federal Tax Matters.................................
Tax Consequences of Purchase Payments...........
Tax Consequences of Distributions...............
Special Tax Consequences -- Early
Distribution..................................
Special Tax Consequences -- Required
Distributions................................. 11
Tax Free Rollovers, Transfers and Exchanges..... 12
Exchange Privilege.................................. 12
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 12
Exchanges From Independence Plus Contracts...... 13
Exchanges From V-Plan Contracts................. 14
Exchanges From SA-1 and SA-2 Contracts.......... 15
Exchanges From Impact Contracts................. 16
Exchanges From Compounder Contracts............. 17
Information Which May Be Applicable To Any
Exchange...................................... 18
Calculation of Surrender Charge..................... 19
Illustration of Surrender Charge on Total Surrender.. 19
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 19
Purchase Unit Value................................. 20
Illustration of Calculation of Purchase Unit
Value......................................... 20
Illustration of Purchase of Purchase Units...... 20
Performance Calculations............................ 20
Money Market Division Yields.................... 20
Calculation of Yield for Money Market
Division Six.................................. 20
Illustration of Calculation of Yield for Money
Market Division Six........................... 20
Calculation of Effective Yield for Money Market
Division Six.................................. 21
Illustration of Calculation of Effective Yield
for Money Market Division Six................. 21
Standardized Yield for Bond Fund Divisions.......... 21
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 21
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 21
Calculation of Average Annual Total Return...... 22
Performance Information............................. 23
Hypothetical $10,000 Account Value and
Cumulative Return as Compared
to Benchmark Tables........................... 23
Performance Compared to Market Indices.......... 23
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 26
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 27
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 27
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 28
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 28
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 29
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 29
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 30
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 30
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 31
Putnam OTC & Emerging Growth Division
Twenty-seven Compared to Russell 2000 Index
and S&P 500 Index............................. 32
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 32
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 33
Vanguard Fixed Income Securities Fund -- Long-
Term Corporate Portfolio Division Twenty-two
Compared to Merrill Lynch Corporate Master
Index......................................... 33
Vanguard Fixed Income Securities Fund -- Long-
Term U.S. Treasury Portfolio Division Twenty-
three Compared to Lehman Brothers U.S.
Treasury Long-Term Index...................... 34
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 34
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 35
Payout Payments..................................... 36
Assumed Investment Rate......................... 36
Amount of Payout Payments....................... 36
Payout Unit Value............................... 36
Illustration of Calculation of Payout Unit
Value......................................... 37
Illustration of Payout Payments................. 37
Distribution of Variable Annuity Contracts.......... 38
Experts............................................. 38
Comments on Financial Statements.................... 39
</TABLE>
49
<PAGE> 104
(This page intentionally left blank)
<PAGE> 105
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
10851 N. Black Canyon Hwy
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 774-7844
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(650) 574-5433
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
(303) 988-3344
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
(813) 961-1611
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
(317) 574-7145
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 750-5611
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
(919) 489-6529
Two Summit Park Drive
Suite 410
Independence, OH 44131
(216) 520-2028
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
(503) 223-6288
1767 Sentry Pkwy. West 19
Suite 300
Blue Bell, PA 19422
(215) 646-8030
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
(972) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 465-2253
There are also more than forty branch offices located throughout the country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 106
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
UNITS OF INTEREST UNDER GROUP AND INDIVIDUAL
VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
SEPARATE ACCOUNT A
FOR SERIES 2.1.40 TO 2.12.40 January 1, 1998
PROSPECTUS
Certain series of Portfolio Director 2 consist of group and individual variable
annuity contracts that are offered by The Variable Annuity Life Insurance
Company ("VALIC") to Participants in certain employer sponsored retirement
plans. Portfolio Director 2 Series 2.1.40 to 2.12.40 consists of group variable
annuity contracts that are offered by Valic to Participants in certain employer
sponsored retirement plans. Portfolio Director 2 may be available to you when
you participate in a retirement program that qualifies for deferral of federal
income taxes. Non-qualified contracts are also available for certain employer
plans only. Portfolio Director 2 is composed of the following contract forms:
UIT-194, UITG-194, UITN-194, UIT-IRA-194 and UIT-SEP-194.
Portfolio Director 2 permits you to invest in and receive retirement benefits
from Fixed Account Options and/or Variable Account Options. Each of these
investment options is explained more fully in this prospectus. Here is a list of
these investment options:
TWO FIXED ACCOUNT OPTIONS: Fixed Account Plus
Short-Term Fixed Account
EIGHTEEN VARIABLE ACCOUNT OPTIONS*
<TABLE>
<S> <C> <C>
American General Series Portfolio Founders Funds, Inc.: Templeton Funds, Inc.:
Company (AGSPC): Founders Growth Fund Templeton Foreign Fund
Growth Fund Neuberger&Berman Management Inc.:
International Government Bond Fund Neuberger&Berman Guardian Trust The Vanguard Group, Inc.:
Money Market Fund Vanguard Fixed Income
Science & Technology Fund Putnam Investments: Securities Fund --
Social Awareness Fund Putnam Global Growth Fund Long-Term Corporate
Stock Index Fund Putnam New Opportunities Fund Portfolio
Putnam OTC & Emerging Growth Vanguard Fixed Income
American Century Investment Fund Securities Fund --
Management, Inc.: Long-Term U.S.
American Century -- Twentieth Scudder Kemper Investments, Inc.: Treasury Portfolio
Century Ultra Fund Scudder Growth and Income Fund Vanguard/Wellington Fund
Vanguard/Windsor II
</TABLE>
* Each of these mutual funds is publicly available except for the six AGSPC
Funds.
- --------------------------------------------------------------------------------
This prospectus provides you with information you should know before investing
in Portfolio Director 2. This prospectus is accompanied by the current
prospectuses for the mutual fund options listed above. Please read and retain
each of these prospectuses for future reference.
A Statement of Additional Information, dated January 1, 1998, has been filed
with the Securities and Exchange Commission. This Statement of Additional
Information contains additional information about Portfolio Director 2 and is
part of this prospectus. For a free copy, complete and return the form contained
in the back of this prospectus or call 1-800-44-VALIC.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES. ALSO, IT HAS NOT PASSED ON WHETHER THIS PROSPECTUS IS ADEQUATE OR
ACCURATE. IT IS A CRIMINAL OFFENSE TO STATE OTHERWISE.
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ABOUT THE PROSPECTUS......................... 1
PROFILE OF PORTFOLIO DIRECTOR 2.............. 2
FEE TABLE.................................... 4
SELECTED PURCHASE UNIT DATA.................. 7
ABOUT PORTFOLIO DIRECTOR 2................... 8
ABOUT VALIC.................................. 8
ABOUT VALIC SEPARATE ACCOUNT A............... 8
VARIABLE ACCOUNT OPTIONS..................... 9
Summary of Funds........................ 9
PURCHASE PERIOD.............................. 19
Purchase Payments....................... 19
Purchase Units.......................... 19
Calculation of Purchase Unit Value...... 19
Choosing Investment Options............. 20
Fixed Account Options.............. 20
Variable Account Options........... 20
Stopping Purchase Payments.............. 20
TRANSFERS BETWEEN INVESTMENT OPTIONS......... 21
During the Purchase Period.............. 21
During the Payout Period................ 21
Communicating Transfer or Reallocation
Instructions.......................... 21
Effective Date of Transfer.............. 21
FEES AND CHARGES............................. 22
Account Maintenance Fee................. 22
Surrender Charge........................ 22
Amount of Surrender Charge......... 22
10% Free Withdrawal................ 22
Exceptions to Surrender
Charge........................... 22
Premium Tax Charge...................... 23
Separate Account Charges................ 23
Fund Annual Expense Charge.............. 23
Other Tax Charges....................... 23
Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality
and Expense Risk Fee or Administration
and Distribution Fee Charges.......... 24
Separate Account Expense
Reimbursement......................... 24
PAYOUT PERIOD................................ 25
Fixed Payout............................ 25
Variable Payout......................... 25
Combination Fixed and Variable Payout... 25
Payout Date............................. 25
Payout Options.......................... 25
Enhancements to Payout Options.......... 26
Payout Information...................... 26
SURRENDER OF ACCOUNT VALUE................... 27
When Surrenders are Allowed............. 27
Amount That May Be Surrendered.......... 27
Surrender Restrictions.................. 27
Partial Surrenders...................... 27
Systematic Withdrawals.................. 27
Distributions Required By Federal Tax
Law................................... 28
EXCHANGE PRIVILEGE........................... 29
Restrictions on Exchange Privilege...... 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Taxes and Conversion Costs.............. 29
Surrender Charge........................ 29
Exchange Offers for Contracts Other Than
Portfolio Director and Portfolio
Director 2............................ 29
Exchange Offer for Portfolio Director
and Portfolio Director 2.............. 30
Comparison of Contracts................. 30
Features of Portfolio Director 2........ 30
Agents' and Managers' Retirement Plan
Exchange Offer........................ 30
DEATH BENEFITS............................... 32
Beneficiary Information................. 32
Special Information for Individual
Non-Tax Qualified Contracts........... 32
During the Purchase Period.............. 32
Interest Guaranteed Death
Benefit.......................... 32
Standard Death Benefit............. 33
During the Payout Period................ 33
HOW TO REVIEW INVESTMENT PERFORMANCE OF
SEPARATE ACCOUNT DIVISIONS................. 34
Types of Investment Performance
Information Advertised................ 34
Total Return Performance
Information........................... 34
Standard Average Annual Total
Return................................ 34
Nonstandard Average Annual Total
Return................................ 34
Cumulative Total Return............... 34
Annual Change in Purchase Unit
Value................................. 34
Cumulative Change in Purchase Unit
Value.............................. 35
Total Return Based on Different
Investment Amounts................. 35
An Assumed Account Value of $10,000.. 35
Yield Performance Information........... 35
AGSPC Money Market Division........... 35
Divisions Other Than The AGSPC Money
Market Division.................... 35
Performance Information: Average Annual
Total Return, Cumulative Return and
Annual and Cumulative Change in
Purchase Unit Value Tables............ 35
OTHER CONTRACT FEATURES...................... 39
Changes That May Not Be Made............ 39
Change of Beneficiary................... 39
Contingent Owner........................ 39
Cancellation -- The 20 Day "Free
Look"................................. 39
We Reserve Certain Rights............... 39
Relationship to Employer's Plan......... 39
VOTING RIGHTS................................ 40
Who May Give Voting Instructions........ 40
Determination of Fund Shares
Attributable to Your Account.......... 40
During Purchase Period................ 40
During Payout Period or after a Death
Benefit Has Been Paid.............. 40
How Fund Shares Are Voted............... 40
FEDERAL TAX MATTERS.......................... 41
Type of Plans........................... 41
Tax Consequences in General............. 41
Effect of Tax-Deferred Accumulations.... 42
</TABLE>
(i)
<PAGE> 108
ABOUT THE PROSPECTUS
- --------------------------------------------------------------------------------
Unless otherwise specified in this prospectus, the words we, our, Company, and
VALIC mean The Variable Annuity Life Insurance Company. The words you and your,
unless otherwise specified in this prospectus, mean the participant, contract
owner, annuitant or beneficiary.
We will use a number of other specific terms in this prospectus. We will, when
that term is used in the prospectus, provide you with a definition of that term.
The terms used in this prospectus for which we will provide you a definition
are:
<TABLE>
<CAPTION>
DEFINED TERMS PAGE NO.
- ------------- --------
<S> <C>
Account Value 21
Annuitant 32
Assumed Investment Rate 25
Beneficiary 32
Contract Owner 32
Division 34
Fixed Account Options 32
Home Office 21
Mutual Fund or Fund 08
Participant 01
Participant Year 22
Payout Period 21
Payout Unit 25
Purchase Payments 19, 34
Purchase Period 21
Purchase Unit 20
VALIC Separate Account A 40
Variable Account Options 09, 32
</TABLE>
This prospectus is being given to you to help you make decisions for selecting
various investment options and benefits to plan and save for your retirement. It
is intended to provide you with information about VALIC, Portfolio Director 2,
and saving for your retirement.
The purpose of Variable Account Options and Variable Payout Options is to
provide you investment returns which are greater than the effects of inflation.
We cannot, however, guarantee that this purpose will be achieved.
This prospectus describes a contract in which units of interest in VALIC's
Separate Account A are offered. Portfolio Director 2 will allow you to
accumulate retirement dollars in Fixed Account Options and/or Variable Account
Options. This prospectus describes only the variable aspects of Portfolio
Director 2 except where the Fixed Account Options are specifically mentioned.
For specific information about the Variable Account Options, you should refer to
the mutual fund prospectuses you have been given with this document. You should
keep these prospectuses to help answer any questions you may have in the future.
Following this introduction is a summary of the major features and options of
Portfolio Director 2. This summary is called the "Profile of Portfolio Director
2." It is intended to provide you with a brief overview of those sections
discussed in more detail in this prospectus.
PARTICIPANT -- the individual,
(in most cases you are the
Participant) for whom
Purchase Payments are made.
1
<PAGE> 109
PROFILE OF PORTFOLIO DIRECTOR 2
- --------------------------------------------------------------------------------
Portfolio Director 2 is VALIC's combination fixed and variable annuity that
offers you a wide choice of investment options and flexibility. A summary of
Portfolio Director 2's major features is presented below. For a more detailed
discussion of Portfolio Director 2, please read the entire prospectus carefully.
FIXED AND VARIABLE OPTIONS
Portfolio Director 2 offers you a choice from among 18 Variable Account Options
and two Fixed Account Options. You may invest in up to seven of these investment
options at any one time.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
FIXED ACCOUNT
OPTIONS
- -------------------------------------------------------------------------------------------------------------------------------
FIXED Fixed Guaranteed high current --
OPTIONS Account Plus interest income
-----------------------------------------------------------------------------------------------------------
Short-Term Guaranteed current --
Fixed Account interest income
- -------------------------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNT INVESTMENT
OPTIONS STRATEGY ADVISER
- -------------------------------------------------------------------------------------------------------------------------------
INDEX AGSPC Stock Growth through investments tracking VALIC
EQUITY Index the S&P 500(R) Index
FUND Fund
- -------------------------------------------------------------------------------------------------------------------------------
ACTIVELY AGSPC Growth Growth through investments VALIC
MANAGED Fund in service sector companies
-----------------------------------------------------------------------------------------------------------
EQUITY American Century -- Capital growth through American Century
FUNDS Twentieth Century investments in common
Ultra Fund stock
-----------------------------------------------------------------------------------------------------------
Founders Long-term growth of capital through Founders
Growth investment in common stock of well
Fund established, high quality growth companies
-----------------------------------------------------------------------------------------------------------
Neuberger&Berman Capital appreciation, and secondarily Neuberger&Berman
Guardian Trust current income by investing primarily Management Inc.
in common stocks of long established,
high quality companies
-----------------------------------------------------------------------------------------------------------
Putnam Global Capital appreciation through a globally Putnam
Growth Fund diversified portfolio of common stocks
-----------------------------------------------------------------------------------------------------------
Putnam New Long-term capital appreciation Putnam
Opportunities Fund through investment in common stock
-----------------------------------------------------------------------------------------------------------
Putnam OTC & Capital appreciation through Putnam
Emerging Growth investments in common stocks of
Fund small-to-medium companies
-----------------------------------------------------------------------------------------------------------
Scudder Growth Long-term growth of capital, current Scudder
and Income Fund income and growth of income
-----------------------------------------------------------------------------------------------------------
Templeton Growth through investments Templeton
Foreign in companies and governments
Fund outside the U.S.
-----------------------------------------------------------------------------------------------------------
Vanguard/ Growth and income through Vanguard
Windsor II investment in common stock
- -------------------------------------------------------------------------------------------------------------------------------
BALANCED Vanguard/ Income and growth through 30 to 40% Vanguard
FUND Wellington investment in high quality corporate bonds
Fund and 60 to 70% investment in common stocks
- -------------------------------------------------------------------------------------------------------------------------------
INCOME AGSPC International Income and possible growth through VALIC
FUNDS Government investments in high quality foreign
Bond Fund government debt securities
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment Vanguard
Securities in long-term quality corporate bonds
Fund-Long-Term
Corporate Portfolio
-----------------------------------------------------------------------------------------------------------
Vanguard Fixed Income Income through investment in Vanguard
Securities long-term U.S. Treasury bonds
Fund-Long-Term
U.S. Treasury Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
SPECIALTY AGSPC Science & Growth through investments in stocks VALIC
FUNDS Technology of companies which benefit from
Fund development of science and technology
-----------------------------------------------------------------------------------------------------------
AGSPC Social Growth through investments in VALIC
Awareness stocks of companies meeting social
Fund criteria of the Fund
- -------------------------------------------------------------------------------------------------------------------------------
MONEY AGSPC Money Income through investments in VALIC
MARKET Market short-term money market
FUND Fund securities
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------
FIXED --
OPTIONS
-----------------------
--
- -------------------------------------------
SUBADVISER
- -------------------------------------------
INDEX Bankers Trust
EQUITY
FUND
- -------------------------------------------
ACTIVELY T. Rowe Price
MANAGED
-----------------------
EQUITY N/A
FUNDS
-----------------------
N/A
-----------------------
Neuberger&
Berman, LLC
-----------------------
N/A
-----------------------
N/A
-----------------------
N/A
-----------------------
N/A
-----------------------
N/A
-----------------------
N/A
- -------------------------------------------
BALANCED N/A
FUND
- -------------------------------------------
INCOME N/A
FUNDS
-----------------------
N/A
-----------------------
N/A
- -------------------------------------------
SPECIALTY T. Rowe Price
FUNDS
-----------------------
N/A
- -------------------------------------------
MONEY N/A
MARKET
FUND
- -------------------------------------------
</TABLE>
2
<PAGE> 110
- --------------------------------------------------------------------------------
A detailed description of the investment objective of each Fund can be found in
the section of the prospectus entitled "Variable Account Options," and also in
the current prospectus for each Fund mentioned.
INTEREST GUARANTEED DEATH
BENEFIT
Portfolio Director 2 offers a death benefit with an interest guarantee when
death occurs prior to your reaching age 70.
This contract provision is not available in some states.
LOANS
Portfolio Director 2 offers a tax-free loan provision for tax-qualified
contracts that gives you access to your money in either of the Fixed Account
Options, subject to a minimum loan amount of $1,000. The availability of loans
is subject to government regulations, as well as your employer's plan
provisions.
Keep in mind that tax laws place restrictions on withdrawals (i.e. loans which
are not repaid) if made prior to age 59 1/2.
TRANSFERS
There is no charge to transfer the money in your account among Portfolio
Director 2's investment options. You may transfer your Account Values between
Variable Account Options at any time during the Purchase Period.
Your Account Value in the Short-Term Fixed Account must remain there for at
least 90 days before it can be transferred to other investment options. In Fixed
Account Plus, up to 20% of your Account Value may be transferred during each
contract year to other investment options.
Once you begin receiving payments from your account (called the Payout Period),
you may still transfer funds among Variable Account Options once each contract
year.
Transfers can be made by calling VALIC's toll-free transfer service at
1-800-621-7792. For more information on account transfers, see the "Transfers
Between Investment Options" section in the prospectus.
FEES AND CHARGES
ACCOUNT MAINTENANCE FEE
If any of your account is invested in Variable Account Options, a quarterly
account maintenance fee of $3.75 is charged to your account. If you invest only
in Fixed Account Options during a calendar quarter no account maintenance fee is
assessed. Reductions in the account maintenance fee may be available if certain
conditions are met.
SURRENDER CHARGE
Under some circumstances a surrender charge is made to your account. These
situations are discussed in detail in the section of the prospectus entitled
"Fees and Charges -- Surrender Charge." When this happens the surrender charge
is computed in two ways and you are charged whichever amount is less. The first
amount is simply 5% of whatever amount you have withdrawn. The second amount is
5% of the contributions you made to your account during the last 60 months.
Withdrawals are always subject to your plan provisions and federal tax
restrictions, which generally include a tax penalty on withdrawals made prior to
age 59 1/2.
PREMIUM TAX CHARGE
Premium taxes ranging from zero to 3% are currently imposed by certain states
and municipalities on Purchase Payments made under the contract.
SEPARATE ACCOUNT CHARGES
Depending on the Variable Account Option you choose you may incur a mortality
and expense risk fee and an administration and distribution fee computed at an
aggregate annualized rate of 0.60% to 0.85% during the purchase period and 1.00%
to 1.25% during the payout period on the average daily net asset value of VALIC
Separate Account A. Reductions in the mortality and expense risk fee and
administration and distribution fee may be available for plan types meeting
certain criteria.
FUND ANNUAL EXPENSE CHARGE
A daily charge based on a percentage of each Fund's average daily net asset
value is payable by each Fund to its investment adviser.
Since some of these fees may not apply to your contract, consult your VALIC
Retirement Plan Specialist to see how these provisions apply to you.
SEPARATE ACCOUNT
EXPENSE REIMBURSEMENT
The Company will reimburse to certain Divisions any fees it receives from the
Fund or its affiliate for providing the Fund administrative and shareholder
services. For more information as to which Variable Account Options have a
Separate Account Expense Reimbursement see the Fee Table.
PAYOUT OPTIONS
When you withdraw your money, you can select from several payout options: a
lifetime annuity (which guarantees payment for as long as you live), periodic
withdrawals and systematic withdrawals. More information on payout options can
be found in the "Payout Period" section of the prospectus.
FEDERAL TAX INFORMATION
Although deferred annuity contracts such as Portfolio Director 2 can be
purchased with after-tax dollars, they are primarily used in connection with
retirement programs which receive favorable tax treatment under federal law.
PURCHASE REQUIREMENTS
Purchase Payments may be made at any time and in any amount, subject to plan
limitations.
To learn more about the
INTEREST GUARANTEED DEATH
BENEFIT, refer to the section
in the prospectus entitled
"Death Benefits."
More information on FEES
may be found in the
prospectus under the
headings "FEES AND
CHARGES" AND "FEE TABLE."
For a more detailed
discussion of these income
tax provisions, see the
"FEDERAL TAX MATTERS"
section of the prospectus and
of the Statement of Additional
Information.
For more information on
PURCHASE PAYMENTS, refer
to the "Purchase Period"
section of the prospectus.
3
<PAGE> 111
FEE TABLE
- --------------------------------------------------------------------------------
CONTRACT OWNER/PARTICIPANT EXPENSES(1)
<TABLE>
<S> <C>
Account Maintenance Fee ($3.75 per quarter, annualized)(2) $ 15
Maximum Surrender Charge(2) 5.00%
</TABLE>
SEPARATE ACCOUNT EXPENSES
(as a percentage of Separate Account net assets):
<TABLE>
<CAPTION>
MORTALITY ADMINISTRATION SEPARATE
AND AND ACCOUNT
EXPENSE RISK DISTRIBUTION EXPENSE TOTAL SEPARATE
FUND FEE(3) FEE(3) REIMBURSEMENT ACCOUNT FEE
---- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
AGSPC Growth 0.25% 0.35% -- 0.60%
AGSPC International Government Bond 0.25 0.35 -- 0.60
AGSPC Money Market 0.25 0.35 -- 0.60
AGSPC Science & Technology 0.25 0.35 -- 0.60
AGSPC Social Awareness 0.25 0.35 -- 0.60
AGSPC Stock Index 0.25 0.35 -- 0.60
American Century -- Twentieth
Century Ultra(4) 0.25 0.60 (0.21%) 0.64
Founders Growth(4) 0.25 0.60 (0.25) 0.60
Neuberger&Berman Guardian Trust(4) 0.25 0.60 (0.25) 0.60
Putnam Global Growth(4) 0.25 0.60 (0.25) 0.60
Putnam New Opportunities(4) 0.25 0.60 (0.25) 0.60
Putnam OTC & Emerging Growth(4) 0.25 0.60 (0.25) 0.60
Scudder Growth and Income(4) 0.25 0.60 (0.25) 0.60
Templeton Foreign(4) 0.25 0.60 (0.25) 0.60
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate
Portfolio 0.25 0.60 -- 0.85
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio 0.25 0.60 -- 0.85
Vanguard/Wellington 0.25 0.60 -- 0.85
Vanguard/Windsor II 0.25 0.60 -- 0.85
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund net assets):
<TABLE>
<CAPTION>
MANAGEMENT 12B-1 OTHER TOTAL FUND
FUND FEES FEES EXPENSES(5) EXPENSES
---- ---------- ----- ----------- ----------
<S> <C> <C> <C> <C>
AGSPC Growth 0.80% -- 0.06% 0.86%
AGSPC International Government Bond 0.50 -- 0.06 0.56
AGSPC Money Market 0.50 -- 0.07 0.57
AGSPC Science & Technology 0.90 -- 0.06 0.96
AGSPC Social Awareness 0.50 -- 0.06 0.56
AGSPC Stock Index 0.27 -- 0.07 0.34
American Century -- Twentieth Century
Ultra 1.00 -- 0.00 1.00
Founders Growth 0.71 0.25%(4) 0.23 1.19
Neuberger&Berman Guardian Trust(6) 0.84 -- 0.04 0.88
Putnam Global Growth 0.65 0.25(4) 0.37 1.27
Putnam New Opportunities 0.50 0.25(4) 0.31 1.06
Putnam OTC & Emerging Growth 0.56 0.25(4) 0.35 1.16
Scudder Growth and Income 0.49 -- 0.29 0.78
Templeton Foreign 0.61 0.25(4) 0.22 1.08
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio 0.03 -- 0.25 0.28
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio 0.01 -- 0.24 0.25
Vanguard/Wellington 0.04 -- 0.27 0.31
Vanguard/Windsor II 0.13 -- 0.26 0.39
</TABLE>
See footnotes on page 6.
4
<PAGE> 112
EXAMPLE #1 -- Assuming No Account Maintenance Fee and
No Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge or
account maintenance fee imposed, invested in a single Separate Account Division
as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $15 $46 $ 80 $175
AGSPC International Government Bond Division
13 12 37 64 141
AGSPC Money Market Division 6 12 37 64 143
AGSPC Science & Technology Division 17 16 49 85 186
AGSPC Social Awareness Division 12 12 37 64 141
AGSPC Stock Index Division 10 10 30 52 116
American Century -- Twentieth Century Ultra
Division 31 17 52 90 195
Founders Growth Division 30 18 56 97 211
Neuberger&Berman Guardian Trust
Division 29 15 47 81 177
Putnam Global Growth Division 28 19 59 101 220
Putnam New Opportunities Division 26 17 52 90 197
Putnam OTC & Emerging Growth Division 27 18 55 96 208
Scudder Growth and Income Division 21 14 44 76 166
Templeton Foreign Division 32 17 53 91 199
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 12 36 62 138
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio Division
23 11 35 61 134
Vanguard/Wellington Division 25 12 37 64 141
Vanguard/Windsor II Division 24 13 39 68 150
</TABLE>
EXAMPLE #2 -- Assuming No Surrender at the End of the
Period Shown:
- --------------------------------------------------------------------------------
Total Expenses. You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract without a surrender charge
imposed, invested in a single Separate Account Division as listed below,
assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $16 $ 48 $ 84 $183
AGSPC International Government Bond Division
13 13 39 68 149
AGSPC Money Market Division 6 13 39 68 151
AGSPC Science & Technology Division 17 17 51 89 194
AGSPC Social Awareness Division 12 13 39 68 149
AGSPC Stock Index Division 10 10 32 56 124
American Century -- Twentieth Century Ultra
Division 31 17 54 93 203
Founders Growth Division 30 19 59 101 219
Neuberger&Berman Guardian Trust
Division 29 16 49 85 185
Putnam Global Growth Division 28 20 61 105 227
Putnam New Opportunities Division 26 18 55 94 205
Putnam OTC & Emerging Growth Division 27 19 58 99 215
Scudder Growth and Income Division 21 15 46 79 174
Templeton Foreign Division 32 18 55 95 207
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio Division 22 12 38 66 146
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio Division
23 12 37 65 143
Vanguard/Wellington Division 25 13 39 68 149
Vanguard/Windsor II Division 24 13 42 72 159
</TABLE>
5
<PAGE> 113
EXAMPLE #3 -- Assuming Surrender at the End of the Period Shown:
- --------------------------------------------------------------------------------
Total Expenses: You would pay the following expenses on a $1,000 investment
under a typical Portfolio Director 2 Contract invested in a single Separate
Account Division as listed below, assuming a 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
AGSPC Growth Division 15 $62 $ 98 $134 $183
AGSPC International Government Bond Division 13 59 89 118 149
AGSPC Money Market Division 6 59 89 118 151
AGSPC Science & Technology Division 17 63 101 139 194
AGSPC Social Awareness Division 12 59 89 118 149
AGSPC Stock Index Division 10 57 82 106 124
American Century -- Twentieth Century Ultra
Division 31 64 104 143 203
Founders Growth Division 30 65 108 151 219
Neuberger&Berman Guardian Trust
Division 29 62 99 135 185
Putnam Global Growth Division 28 66 110 155 227
Putnam New Opportunities Division 26 64 104 144 205
Putnam OTC & Emerging Growth Division 27 65 107 149 215
Scudder Growth and Income Division 21 61 96 129 174
Templeton Foreign Division 32 64 105 145 207
Vanguard Fixed Income Securities Fund -- Long-
Term Corporate Portfolio Division 22 59 88 116 146
Vanguard Fixed Income Securities Fund -- Long-
Term U.S. Treasury Portfolio Division 23 59 87 115 143
Vanguard/Wellington Division 25 59 89 118 149
Vanguard/Windsor II Division 24 60 92 122 159
</TABLE>
- ------------
(1) Premium taxes are not shown here, but may be charged by some states. See:
"Premium Tax Charge" in this prospectus.
(2) Reductions in the surrender charge and the account maintenance fee are
available if certain conditions are met. See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration
and Distribution Fee Charges" and "Exceptions to Surrender Charge" in this
prospectus.
(3) The mortality and expense risk fee and administration and distribution fee
reflected in the Fee Table is deducted during the Purchase Period. The
mortality and expense risk fee and administration and distribution fee
deducted during the Payout Period is computed at an annualized rate of 1.00%
to 1.25% depending upon the Variable Account Option selected.
(4) For these Funds the Total Separate Account Fee equals the VALIC Separate
Account A mortality and expense risk fee plus the administration and
distribution fee reduced by the Separate Account Expense Reimbursement.
Pursuant to the Separate Account Expense Reimbursement the Company's charges
to these Divisions are reduced by an amount equal to payments from the
underlying Fund and/or its affiliate for administrative and shareholder
services provided by the Company. See "Fees and Charges -- Separate Account
Expense Reimbursement" in this prospectus for more information.
The following Funds and/or their affiliates pay administrative, shareholder
service or distribution fees to the Company: American Century -- Twentieth
Century (0.21%), Founders (0.25%), Neuberger&Berman (0.25%), Putnam (0.25%),
Scudder (0.25%) and Templeton (0.25%). With respect to American
Century -- Twentieth Century Ultra Fund, the Fund pays fees to the Company
of 0.20% on assets in excess of $0 but less than $75 million, and 0.25% on
assets in excess of $75 million.
(5) OTHER EXPENSES includes custody, accounting, reports to shareholders, audit,
legal and other miscellaneous expenses. See each Fund's prospectus for a
detailed explanation of these fees.
(6) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies to, and as part of
a "master/feeder structure" invests in, the same portfolio as
Neuberger&Berman Guardian Fund ("Fund"), which is also managed by
Neuberger&Berman Management Incorporated ("N&B"). N&B voluntarily bears
certain expenses of the Trust so that the Trust's expense ratio per annum
will not exceed the expense ratio per annum of the Fund by more than 0.10%
of the Trust's average daily net assets. This arrangement can be terminated
on sixty days' notice.
Note: These examples should not be considered representations of past or future
expenses for VALIC Separate Account A or for any Fund. Actual expenses may be
greater or less than those shown above. Similarly, the 5% annual rate of return
assumed in the examples is not an estimate or guarantee of future investment
performance. The purpose of the Fee Table above is to help Contract Owners and
Participants understand the various expenses of VALIC Separate Account A and the
Funds which are, in effect, passed on to the Contract Owners and Participants.
This Fee Table shows all charges and expenses which may be deducted from the
assets of VALIC Separate Account A and from the Funds in which VALIC Separate
Account A invests. For a further description of these charges and expenses, see
"Fees and Charges" in this prospectus and the descriptions of fees and charges
in each of the Fund's prospectuses. Any and all limitations on total charges and
expenses are reflected in this Fee Table.
6
<PAGE> 114
SELECTED PURCHASE UNIT DATA
- --------------------------------------------------------------------------------
Portfolio Director 2 Series 2.1.40 to 2.12.40 is a new variable annuity product;
therefore, there is no Selected Purchase Unit Data available at this time.
7
<PAGE> 115
- --------------------------------------------------------------------------------
ABOUT PORTFOLIO DIRECTOR 2
Portfolio Director 2 was developed to help you save money for your retirement.
It offers you a combination of fixed and variable investment options that you
can invest in to help you reach your retirement savings goals. Your
contributions to Portfolio Director 2 can come from different sources, like
payroll deductions or money transfers. Your retirement savings process with
Portfolio Director 2 will involve two stages: the Purchase Period; and the
Payout Period. The first is when you make contributions into Portfolio Director
2 called "Purchase Payments." The second, is when you receive your retirement
payouts. For more information, see "Purchase Period" and the "Payout Period" in
this prospectus.
You may choose, depending upon your retirement savings goals, your personal risk
tolerances, and your retirement plan, to invest in the Fixed Account Options
and/or the Variable Account Options described in this prospectus. When you
decide to retire, or otherwise withdraw your money, you can select from a wide
array of payout options including both fixed and variable payments. In addition,
this prospectus will describe for you all fees and charges that may apply to
your participation in Portfolio Director 2.
ABOUT VALIC
We are a life insurance company organized in 1955 and located in the State of
Texas. Our main business is issuing and offering fixed and variable retirement
annuity contracts, like Portfolio Director 2. Our principal offices are located
at 2929 Allen Parkway, Houston, Texas 77019. We have Regional Offices throughout
the United States. The addresses for these offices are given in the back of this
prospectus.
VALIC is a member of the American General Corporation group of companies.
Members of the American General Corporation group of companies operate in each
of the 50 states, the District of Columbia, and Canada and collectively provide
financial services with activities heavily weighted toward insurance.
ABOUT VALIC SEPARATE ACCOUNT A
When you direct money to Portfolio Director 2's Variable Account Options, you
will be sending that money through VALIC's Separate Account A. You do not invest
directly in the Mutual Funds made available in Portfolio Director 2. VALIC's
Separate Account A invests in the Mutual Funds on behalf of your account.
VALIC Separate Account A is made up of what we call "Divisions." Eighteen
Divisions are available and represent the Variable Account Options in Portfolio
Director 2. Each of these Divisions invests in a different Mutual Fund made
available through Portfolio Director 2. For example, Division Ten represents and
invests in the Stock Index Fund. The earnings (or losses) of each Division are
credited to (or charged against) the assets of that Division, and do not affect
the performance of the other Divisions of VALIC Separate Account A.
VALIC established Separate Account A in 1979 under Texas insurance law to allow
you to be able to invest in a number of Variable Account Options available in
Portfolio Director 2. VALIC Separate Account A is registered with the Securities
and Exchange Commission (SEC) as a unit investment trust under the Investment
Company Act of 1940. Units of interest in VALIC Separate Account A are
registered as securities under the Securities Act of 1933.
VALIC Separate Account A is administered and accounted for as part of VALIC's
business operations. However, the income, capital gains or capital losses,
whether or not realized of each Division of VALIC Separate Account A are
credited to or charged against the assets held in that Division without regard
to the income, capital gains or capital losses of any other Division or arising
out of any other business the Company may conduct. In accordance with the terms
of Portfolio Director 2, VALIC Separate Account A may not be charged with the
liabilities of any other VALIC operation. As stated in Portfolio Director 2, the
Texas Insurance Code requires that the assets of VALIC Separate Account A
attributable to Portfolio Director 2 be held exclusively for the benefit of the
contract owner, participants, annuitants, and beneficiaries of Portfolio
Director 2. When we discuss performance information in this prospectus, we mean
the performance of a VALIC Separate Account A Division.
UNITS OF INTERESTS
Your investment in a Division of VALIC Separate Account A is represented by
units of interest issued by VALIC Separate Account A. On a daily basis, the
units of interest issued by VALIC Separate Account A are revalued to reflect
that day's performance of the underlying mutual fund minus any applicable fees
and charges to VALIC Separate Account A.
All inquiries regarding
PORTFOLIO DIRECTOR 2
may be directed to your
VALIC Regional Office at
the addresses shown in the
back of this prospectus.
MUTUAL FUND OR FUND --
the investment portfolio(s)
of a registered open-end
management investment
company, which serves as
the underlying investment
vehicle for each Division
represented in VALIC
Separate Account A.
For more information about
VALIC, see the Statement of
Additional Information
8
<PAGE> 116
VARIABLE ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
Portfolio Director 2 enables you to participate in Divisions that represent
eighteen Variable Account Options. These Divisions comprise all of the Variable
Account Options that are made available to you through VALIC Separate Account A.
See "About VALIC Separate Account A" in this prospectus.
Each individual Division represents and invests, through VALIC's Separate
Account A, in specific mutual funds. Twelve of the Mutual Funds are also
available to the general public. These mutual funds serve as the investment
vehicles for Portfolio Director 2 and include:
- - American General Series Portfolio
Company (AGSPC) -- offers 6 funds, for which VALIC serves as investment
adviser.
- - American Century Investments -- offers 1 fund for which American Century
Investment Management, Inc. serves as investment adviser.
- - Founders Funds, Inc. -- offers 1 fund for which Founders Asset Management,
Inc. serves as investment adviser.
- - Neuberger&Berman Management Inc. -- offers 1 fund for which Neuberger&Berman
Management Inc. serves as investment manager and Neuberger&Berman LLC, serves
as sub-adviser.
- - Putnam Investments -- offers 3 funds for which Putnam Investment Management
Inc., serves as investment adviser.
- - Scudder Kemper Investments, Inc. -- offers 1 fund for which Scudder Kemper
Investments, Inc. serves as investment adviser.
- - Templeton Funds Inc. -- offers 1 fund for which Templeton Global Advisors
Limited serves as investment adviser.
- - The Vanguard Group Inc. -- offers 4 funds for which Barrow, Hanley, Mewhinney
& Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management,
Inc., Vanguard Core Management Group, Wellington Management Company, LLP and
Vanguard Fixed Income Group serve as investment advisers.
Each of these Funds (except for AGSPC's International Government Bond Fund which
is a non-diversified Fund) is registered as a diversified open-end, management
investment company and is regulated under the Investment Company Act of 1940.
For complete information about each of these Funds, including charges and
expenses, you should refer to the prospectus for that Fund. Additional copies
are available from VALIC or you may contact your VALIC Regional Office at the
addresses shown in the back of this prospectus.
SUMMARY OF FUNDS
A brief summary of the investment objectives of each Mutual Fund is shown below.
In addition to the investment objectives, the change in an Account Value of an
assumed $10,000 investment in each of the Divisions is shown in both table and
graph form. This will reflect a deduction for separate account fees (mortality
and expense risk fees plus administration and distribution fees minus any
applicable reimbursements) and underlying fund charges. This will not reflect
any deduction for account maintenance fees, surrender charges and premium taxes.
These charges would further reduce your return. The Account Values shown reflect
Separate Account performance based on the performance of the underlying Fund for
the last 10 fiscal years or, since inception of the underlying Fund if for less
than 10 years. For more information about how these returns were calculated
including a statement of the charges reflected and tables showing historical
performance information see "How to Review Investment Performance of Separate
Account Divisions" in this prospectus.
VARIABLE ACCOUNT
OPTIONS -- investment
options that correspond
to Separate Account
Divisions offered by
Portfolio Director 2.
Investment returns on
Variable Account
Options may be positive
or negative depending on
the investment
performance of the
underlying Mutual Fund.
9
<PAGE> 117
AGSPC
GROWTH FUND
(Division 15)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital through investment primarily in
common stocks of U.S. growth companies engaged in service-related activities.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29,1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
09/30/94 10,055
09/30/95 14,000
09/30/96 17,160
09/30/97 20,962
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
INTERNATIONAL GOVERNMENT
BOND FUND
(Division 13)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high current income through investments primarily in high quality debt
securities issued or guaranteed by foreign governments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 1, 1991 $ Value
- ------------------------- -------
<S> <C>
10/01/91 $10,000
09/30/92 12,043
09/30/93 12,692
09/30/94 13,138
09/30/95 15,234
09/30/96 15,782
09/30/97 15,541
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 1, 1991
[CHART]
PERIOD ENDED SEPTEMBER 30
10
<PAGE> 118
AGSPC
MONEY MARKET FUND
(Division 6)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks liquidity, protection of capital and current income through investments in
short-term money market instruments.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 10,536
09/30/89 11,419
09/30/90 12,260
09/30/91 12,957
09/30/92 13,362
09/30/93 13,641
09/30/94 14,002
09/30/95 14,674
09/30/96 15,330
09/30/97 16,017
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
SCIENCE & TECHNOLOGY FUND
(Division 17)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital through investment primarily in the common
stocks and equity-related securities of companies that are expected to benefit
from the development, advancement and use of science and technology.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
April 29, 1994 $ Value
- ------------------------- -------
<S> <C>
04/29/94 $10,000
09/30/94 11,337
09/30/95 19,554
09/30/96 22,786
09/30/97 26,554
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE APRIL 29, 1994
[CHART]
PERIOD ENDED SEPTEMBER 30
11
<PAGE> 119
AGSPC
SOCIAL AWARENESS FUND
(Division 12)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to obtain growth of capital through investment, primarily in common
stocks, in companies which meet the social criteria established for the Fund.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
October 2, 1989 $ Value
- ------------------------- -------
<S> <C>
10/02/89 $10,000
09/30/90 9,025
09/30/91 11,405
09/30/92 12,177
09/30/93 13,958
09/30/94 13,725
09/30/95 17,766
09/30/96 21,509
09/30/97 29,861
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE OCTOBER 2, 1989
[CHART]
PERIOD ENDED SEPTEMBER 30
AGSPC
STOCK INDEX FUND
(Division 10)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through investment in common stocks that, as a
group, are expected to provide investment results closely corresponding to the
performance of the Standard & Poor's 500 Stock Index(R)*.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 8,608
09/30/89 11,126
09/30/90 9,982
09/30/91 12,820
09/30/92 14,051
09/30/93 15,764
09/30/94 16,117
09/30/95 20,738
09/30/96 24,756
09/30/97 34,509
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
12
<PAGE> 120
AMERICAN CENTURY --
TWENTIETH CENTURY ULTRA
FUND
Investor Class Shares
(Division 31)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital growth. The Fund invests primarily in common stocks that are
considered to have better-than-average prospects for appreciation.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 8,184
09/30/89 11,915
09/30/90 10,383
09/30/91 18,971
09/30/92 19,080
09/30/93 28,354
09/30/94 25,868
09/30/95 36,431
09/30/96 40,176
09/30/97 51,314
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
FOUNDERS GROWTH FUND
(Division 30)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital. Fund invests primarily in common stocks of
well established, high-quality growth companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 8,277
09/30/89 12,388
09/30/90 9,991
09/30/91 13,333
09/30/92 13,830
09/30/93 19,912
09/30/94 19,199
09/30/95 26,503
09/30/96 31,258
09/30/97 40,817
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
13
<PAGE> 121
NEUBERGER&BERMAN
GUARDIAN TRUST*
(Division 29)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation and, secondarily, current income. The Trust invests
primarily in common stocks of long-established, high quality companies.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 9,702
09/30/89 12,235
09/30/90 10,015
09/30/91 13,798
09/30/92 16,029
09/30/93 19,212
09/30/94 20,254
09/30/95 26,624
09/30/96 28,333
09/30/97 39,117
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
PUTNAM GLOBAL GROWTH
FUND
Class A Shares (Division 28)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. Current income is only an incidental consideration
in selecting investments for the Fund. The Fund is designed for investors
seeking above-average capital growth potential through a globally diversified
portfolio of common stocks. Dividend and interest income is only an incidental
consideration.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 8,166
09/30/89 10,411
09/30/90 9,310
09/30/91 11,309
09/30/92 11,303
09/30/93 13,781
09/30/94 15,147
09/30/95 16,410
09/30/96 18,716
09/30/97 23,398
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
14
<PAGE> 122
PUTNAM NEW OPPORTUNITIES
FUND
Class A Shares
(Division 26)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital appreciation. Current income is only an incidental
consideration. The Fund invests principally in common stocks of companies in
sectors of the economy which the Fund's investment adviser believes possess
above-average long-term growth potential.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
August 31, 1990 $ Value
- ------------------------- -------
<S> <C>
08/31/90 $10,000
09/30/90 9,165
09/30/91 16,241
09/30/92 18,259
09/30/93 28,873
09/30/94 30,693
09/30/95 42,448
09/30/96 53,281
09/30/97 60,637
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE AUGUST 31, 1990
[CHART]
PERIOD ENDED SEPTEMBER 30
PUTNAM OTC & EMERGING
GROWTH FUND
Class A Shares
(Division 27)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks capital appreciation. The Fund invests primarily in common stocks traded
in the over-the-counter ("OTC") market and common stocks, of "emerging growth"
companies listed on securities exchanges. The Fund is designed for investors
willing to assume above-average risk in return for above average capital growth
potential. The Fund may trade securities for short-term profits.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 8,714
09/30/89 11,668
09/30/90 8,924
09/30/91 12,764
09/30/92 13,731
09/30/93 20,079
09/30/94 20,529
09/30/95 30,031
09/30/96 37,792
09/30/97 40,330
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
15
<PAGE> 123
SCUDDER GROWTH AND
INCOME FUND
(Division 21)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term growth of capital, current income and growth of income. The Fund
invests primarily in common stocks, preferred stocks, and securities convertible
into common stocks of companies which offer the prospect for growth of earnings
while paying current dividends.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 8,836
09/30/89 11,637
09/30/90 10,288
09/30/91 13,079
09/30/92 14,601
09/30/93 17,243
09/30/94 18,475
09/30/95 21,907
09/30/96 26,093
09/30/97 36,343
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
TEMPLETON FOREIGN FUND
Class I Shares
(Division 32)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks long-term capital growth through a flexible policy of investing in stocks
and debt obligations of companies and governments outside the United States. Any
income realized will be incidental.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 9,498
09/30/89 12,267
09/30/90 12,535
09/30/91 14,483
09/30/92 15,014
09/30/93 17,931
09/30/94 20,859
09/30/95 22,099
09/30/96 24,180
09/30/97 29,993
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
16
<PAGE> 124
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
CORPORATE PORTFOLIO
Institutional Class Shares
(Division 22)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests in a diversified portfolio of investment
grade corporate and government bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 11,528
09/30/89 12,960
09/30/90 13,216
09/30/91 15,804
09/30/92 18,255
09/30/93 20,989
09/30/94 19,345
09/30/95 23,009
09/30/96 23,450
09/30/97 26,345
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
VANGUARD FIXED
INCOME SECURITIES
FUND -- LONG-TERM
U.S. TREASURY PORTFOLIO
Institutional Class Shares
(Division 23)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks high level of current income consistent with the maintenance of principal
and liquidity. The Portfolio invests at least 85% of its assets in long-term
securities backed by the full faith and credit of the U.S. Government. Also, at
least 65% of the Fund assets will be invested in U.S. Treasury bills, notes and
bonds.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 11,485
09/30/89 13,063
09/30/90 13,155
09/30/91 15,729
09/30/92 17,582
09/30/93 20,909
09/30/94 18,641
09/30/95 22,647
09/30/96 22,782
09/30/97 25,392
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
17
<PAGE> 125
VANGUARD/WELLINGTON FUND
Institutional Class Shares
(Division 25)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks conservation of principal, a reasonable income return, and profits without
undue risk.
This Fund seeks relative capital stability, a reasonable level of income, and
the potential for capital appreciation. By balancing its investments among
common stocks and bonds, the Fund is expected to provide lower investment risk
and share price volatility (and a lower return in the long run) than a mutual
fund which invests exclusively in common stocks.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 9,885
09/30/89 11,970
09/30/90 10,866
09/30/91 13,565
09/30/92 14,991
09/30/93 16,974
09/30/94 17,320
09/30/95 21,271
09/30/96 24,332
09/30/97 30,800
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
VANGUARD/WINDSOR II
Institutional Class Shares
(Division 24)
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE
Seeks to provide long-term growth of capital and income by investing primarily
in common stocks. The Fund's secondary objective is to provide current income.
<TABLE>
<CAPTION>
Annual Value of a $10,000
Stipulated Payment made
September 30, 1987 $ Value
- ------------------------- -------
<S> <C>
09/30/87 $10,000
09/30/88 9,558
09/30/89 12,474
09/30/90 10,118
09/30/91 13,321
09/30/92 15,153
09/30/93 17,618
09/30/94 17,653
09/30/95 22,461
09/30/96 26,864
09/30/97 36,937
</TABLE>
VALUE AT MONTHLY INTERVALS OF A $10,000
STIPULATED PAYMENT MADE SEPTEMBER 30, 1987
[CHART]
PERIOD ENDED SEPTEMBER 30
18
<PAGE> 126
PURCHASE PERIOD
- --------------------------------------------------------------------------------
The Purchase Period begins when your first Purchase Payment is made and
continues until you begin your Payout Period. The Purchase Period can also end
when a Portfolio Director 2 account is surrendered before the Payout Period. The
amount, number, and frequency of your Purchase Payments is determined by the
retirement plan for which Portfolio Director 2 was purchased.
PURCHASE PAYMENTS
You may establish an account only through a VALIC representative. Initial
Purchase Payments must be received by VALIC either with, or after, a completed
application. Your employer is usually responsible for remitting Purchase
Payments to us. The employer is responsible for furnishing instructions to us (a
premium flow report) as to the amount being applied to your account.
Minimum initial and subsequent Purchase Payments are as follows:
<TABLE>
<CAPTION>
Initial Subsequent
Contract Type Payment Payment
------------- ------- ----------
<S> <C> <C>
Periodic Payment $ 30 $ 30
Single Payment $1,000 -0-
</TABLE>
Periodic Payment minimums apply to each Fixed Account Option or Variable Account
Option selected. The Single Payment minimum applies to each of your accounts.
Purchase Payments are received in VALIC's Home Office. When an initial Purchase
Payment accompanies an application, within 2 business days we will:
- - Accept the Application -- and issue a contract. We will also establish your
account and apply your Purchase Payment by crediting the amount to the Fixed
Account Option or Variable Account Option selected;
- - Reject the Application -- and return the Purchase Payment; or
- - Request Additional Information -- to correct or complete the application.
If we receive Purchase Payments from your employer before we receive your
completed application or enrollment form, we will take one of the following
actions:
Return Purchase Payments. If we do not have your name, address or social
security number, we will return the Purchase Payment to your employer unless
this information is immediately provided to us.
Employer-Directed Account. If we have your name, address and social security
number and we have an Employer-Directed Account Agreement from your employer,
generally we will deposit your Purchase Payment
in an "Employer-Directed" account invested in our Money Market Division
Option. You may not transfer these amounts until VALIC has received a
completed application or enrollment form.
Starter Account. If we have your name, address and social security number, but
we do not have an Employer-Directed Account Agreement from your employer, we
will deposit your Purchase Payment in a "starter" account invested in the
Money Market Division. We will send you follow-up letters requesting the
information necessary to complete the application, including your allocation
instructions. Unless a completed application or enrollment form is received by
us within 105 days of establishment of your starter account, the account
balance, including earnings, will be returned to your employer. We are not
responsible for any adverse tax consequences to you that may result from the
return of your employer's contributions.
PURCHASE UNITS
A Purchase Unit is a unit of interest owned by you in your Variable Account
Option. Purchase Units apply only to the Variable Account Options selected for
your account. Purchase Unit values are calculated at the close of regular
trading of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. New
York time (see Calculation of Purchase Unit Value below for more information.)
Purchase Units will be credited the same business day if Purchase Payments are
received by our Home Office before the close of the Exchange. If not, they will
be calculated and credited the next business day. Purchase Unit values will vary
depending on the net investment results of each of the Variable Account Options.
This means the value of your Variable Account Option will fluctuate.
CALCULATION OF PURCHASE UNIT VALUE
The Purchase Unit value for a Division is calculated as shown below:
Step 1: Calculate the gross investment rate:
Gross Investment Rate
= (EQUALS)
The Division's investment income and capital gains and losses (whether
realized or unrealized) on that day from the assets attributable to the
Division.
/ (DIVIDED BY)
The value of the Division for the immediately preceding day on
which the values are calculated.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information as to
how PURCHASE UNIT VALUES
are calculated, see the
Statement of Additional
Information.
19
<PAGE> 127
- --------------------------------------------------------------------------------
We calculate the gross investment rate as of 4:00 p.m. New York time on each
business day when the New York Stock Exchange is open.
Step 2: Calculate net investment rate for any day as follows:
Net Investment Rate
= (EQUALS)
Gross Investment Rate (calculated in Step 1)
- - (MINUS)
Separate Account charges and any income tax charges.
Step 3: Determine Purchase Unit Value for that day.
Purchase Unit Value for that day.
= (EQUALS)
Purchase Unit Value for immediate preceding day.
X (MULTIPLIED BY)
Net Investment Rate (as calculated in Step 2) plus 1.00.
CHOOSING INVESTMENT OPTIONS
There are 20 investment options offered in Portfolio Director 2. This includes 2
Fixed Account Options and 18 Variable Account Options. Unless provided
otherwise, you
may select and combine up to 7 of the 20 options. The Funds that underlie the
Variable Account Options are registered as investment companies under and are
subject to regulation of the Investment Company Act of 1940 (the Act). The Fixed
Account Options are not subject to regulation under the Act and are not required
to be registered under the Securities Act of 1933. As a result, the SEC has not
reviewed data in this prospectus that relates to the Fixed Account Options.
However, federal securities law does require such data to be accurate and
complete.
FIXED ACCOUNT OPTIONS
Each of the Fixed Account Options are part of the Company's general assets. You
may allocate all or a portion of your Purchase Payment to the Fixed Account
Options listed in "Profile of Portfolio Director 2 Contract" appearing in this
prospectus. Purchase Payments you allocate to these Fixed Account Options are
guaranteed to earn at least a minimum rate of interest. Interest is paid on each
of the Fixed Account Options at declared rates, which may be different for each
option. We bear the entire investment risk for the Fixed Account Option. All
Purchase Payments and interest earned on such amounts in your Fixed Account
Option will be paid regardless of the investment results experienced by the
Company's general assets.
Here is how you may calculate the value of your Fixed Account Option during the
Purchase Period:
Value of Your Fixed Account Options
= (EQUALS)
All Purchase Payments made to the Fixed Account Options
+ (PLUS)
Amounts transferred from Variable Account Options to the Fixed Account Options
+ (PLUS)
All interest earned
- - (MINUS)
Amounts transferred or withdrawn from Fixed Account Options (including
applicable fees and charges)
VARIABLE ACCOUNT OPTIONS
You may allocate all or a portion of your Purchase Payments to the Variable
Account Options listed in this prospectus. A complete discussion of each of the
Variable Account Options may be found in the "Variable Account Options" section
in this prospectus. Based upon a Variable Account Option's Purchase Unit Value
your account will be credited with the applicable number of Purchase Units. The
Purchase Unit Value of each Variable Account Option will change daily depending
upon the investment performance of the underlying fund (which may be positive or
negative) and the deduction of VALIC Separate Account A charges. See the "Fees
and Charges" section in this prospectus. Because Purchase Unit Values change
daily, the number of Purchase Units your account will be credited with for
subsequent Purchase Payments will vary. Each Variable Account Option bears its
own investment risk. Therefore, the value of your account may be worth more or
less at retirement or withdrawal.
Here is how to calculate the value of each Variable Account Option in your
account during the Purchase Period:
Value of Your Variable Account Option
= (EQUALS)
Total Number of Purchase Units
X (MULTIPLIED BY)
Current Purchase Unit Value
STOPPING PURCHASE PAYMENTS
Purchase Payments may be stopped at any time. Purchase Payments may be resumed
at any time before your Portfolio Director 2 account has been surrendered. While
no Purchase Payments are being made, the number of Purchase Units outstanding
will remain the same. (This is assuming no transfers or withdrawals are made.)
The value of the Purchase Units will continue to vary. Your Account Value will
continue to be subject to charges.
If your Account Value falls below $300, and you do not make any Purchase
Payments for two years from the date we established your account, we may close
the account and pay the Account Value (less any surrender charge) to you.
PURCHASE UNIT -- a
measuring unit used to
calculate your Account Value
during the Purchase Period.
The value of a Purchase Unit
will vary with the investment
experience of the Separate
Account Division you have
selected.
20
<PAGE> 128
TRANSFERS BETWEEN INVESTMENT OPTIONS
- --------------------------------------------------------------------------------
You may transfer all or part of your Account Value between the various Fixed
Account and Variable Account Options in Portfolio Director 2 without a charge.
Transfer instructions may be made either in writing or by telephone as discussed
below. Transfers may be made during the Purchase Period or during the Payout
Period. We reserve the right to limit transfers as discussed below. Your
employer's plan may also limit your rights to transfer.
DURING THE PURCHASE PERIOD
During the Purchase Period, transfers may be made between Portfolio Director 2's
Fixed Account Options and Variable Account Options.
We currently permit transfers between Variable Account Options or from Variable
Account Options to Fixed Account Options, at any time. We may, however, limit
the number of transfers you can make.
Transfers are also permitted from the Fixed Account Options subject to the
following limitations:
<TABLE>
<CAPTION>
FIXED OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
- -------------- ------------- ----------- ------------
<S> <C> <C> <C>
Fixed Account
Plus: Up to 20% per At any time None (1)
contract year
100% At any time If Account Value
is
less than or
equal
to $500
Short-Term
Fixed
Account: Up to 100% At any time 90-day Holding
Period If
transfer
was previously
made
into Short-Term
Fixed
Account.(2)
</TABLE>
- ---------------
(1) Your employer may further limit or expand the restrictions. We may charge
for those modified restrictions if specified in your employer's retirement
plan.
(2) VALIC may change this holding period at any time in the future, but it will
never be more than 180 days.
DURING THE PAYOUT PERIOD
During the Payout Period, transfers may be made between Portfolio Director 2's
investment options subject to the following limitations:
<TABLE>
<CAPTION>
% OF ACCOUNT
-------------------------------- OTHER
ACCOUNT OPTION VALUE FREQUENCY RESTRICTIONS
-------------- ----------- ------------------- ------------
<S> <C> <C> <C>
Variable: Up to 100% Once every 365 days None
Combination
Fixed
and Variable Up to 100% Once every 365 days None
Payout: of money in
variable
option
payout
Fixed: Not -- --
permitted
</TABLE>
COMMUNICATING TRANSFER OR
REALLOCATION INSTRUCTIONS
A written instruction to transfer or reallocate all or part of your Account
Value between the various investment options in Portfolio Director, should be
sent to VALIC's Home Office.
Instructions for transfers or reallocations may be made by calling
1-800-621-7792. Telephone transfers will be allowed unless we have been notified
not to accept such telephone instructions. In this event, we must receive
written instructions, in order to permit future telephone transfers to be made.
Before a transfer will be made by telephone, you must give us the requested
identifying information concerning your account(s).
Unless we have been instructed not to accept requests for telephone transfers,
anyone may effect a telephone transfer if they furnish the requested
information. You will bear any loss resulting from such instructions, whether
the caller was specifically authorized by you or not.
No one that we employ or that represents VALIC may give telephone instructions
on your behalf without VALIC's prior written permission. (This does not apply to
a contract with the immediate family of an employee or representative of VALIC).
We will send you a confirmation of the completed transfer within 5 days from the
date of your instruction. When you receive your confirmation, it is your duty to
verify the information shown, and advise us of any errors within one business
day.
You will bear the risk of loss arising from instructions received by telephone.
We are not responsible for the authenticity of such instructions. Any telephone
instructions which we reasonably believe to be genuine will be your
responsibility. This includes losses from errors in communication. Telephone
transfer instruction may not be made during the Payout Period. We reserve the
right to stop telephone transfers at any time.
EFFECTIVE DATE OF TRANSFER
The effective date of a transfer will be:
- - The date of receipt, if received in our Home Office before the close of
regular trading of the New York Stock Exchange on a day values are calculated;
(Normally, this will be 4:00 P.M. New York time); otherwise
- - The next date values are calculated.
ACCOUNT VALUE -- the total
sum of your Fixed Account
and/or Variable Account
Options that have not yet
been applied to your Payout
Payments.
PURCHASE PERIOD -- the time
between your first Purchase
Payment and your Payout
Period (or surrender).
HOME OFFICE -- Our
principal office at 2929 Allen
Parkway, Houston, Texas
77019.
PAYOUT PERIOD -- the time
that starts when you begin to
withdraw your money in a
steady stream of payments.
21
<PAGE> 129
FEES AND CHARGES
- --------------------------------------------------------------------------------
By investing in Portfolio Director 2, you may be subject to six basic types of
fees and charges:
- - Account Maintenance Fee
- - Surrender Charge
- - Premium Tax Charge
- - Separate Account Charges
- - Fund Annual Expense Charge
- - Other Tax Charges
These fees and charges are explained below. For additional information about
these fees and charges, see the Fee Table in this prospectus.
ACCOUNT MAINTENANCE FEE
An account maintenance fee of $3.75 will be deducted on the last day of each
calendar quarter if any of your money is invested in the Variable Account
Options. We will sell Purchase Units from your Account to pay the account
maintenance fee. If you invest only in Fixed Account Options during a calendar
quarter, this fee will not apply. If all your money in a Variable Account Option
is withdrawn, or transferred to a Fixed Account Option, the fee will be deducted
at that time. The fee will be assessed equally among the Variable Account
Options that make up your Account Value.
The account maintenance fee is to reimburse the Company for our administrative
expenses for providing Variable Account Options. This includes the expense for
establishing and maintaining the record keeping for the Variable Account
Options. We do not expect that the amount of fees we receive will be greater
than our expenses.
The amount of the account maintenance fee may be reduced or waived if Portfolio
Director 2 is issued to certain types of plans which are expected to result in
lower costs to VALIC. To learn more about how we determine if account
maintenance fees may be reduced or waived, see the "Reduction or Waiver of
Account Maintenance Fee, Surrender, Mortality and Expense Risk Fee or
Administration and Distribution Fee Charges" section in this prospectus. If you
have two or more accounts established under the same group contract, we may
agree to deduct an account maintenance fee from only one account.
SURRENDER CHARGE
When you withdraw money from your account, you may be subject to a surrender
charge. For information about your right to surrender, see "Surrender of Account
Value" in this prospectus.
It is assumed that the most recent Purchase Payments are withdrawn first. No
surrender charge will be applied unless an amount is
actually withdrawn. We consider all Purchase Payments to be withdrawn before
earnings are withdrawn.
Amounts exchanged from other contracts issued by the Company may or may not be
subject to a surrender charge. After exchange, it is assumed that any new
Purchase Payments are withdrawn before the exchanged amount. For more
information, see "Exchange Privilege" in the Statement of Additional
Information.
AMOUNT OF SURRENDER CHARGE
A surrender charge may not be greater than:
- - Five percent (5%) of the amount of all Purchase Payments received during the
past 60 months; or
- - Five percent (5%) of the amount withdrawn.
10% FREE WITHDRAWAL
In any Participant Year, up to 10% of the Account Value may be withdrawn without
a surrender charge. The surrender charge will apply to any amount withdrawn that
exceeds this 10% limit. The percentage withdrawn will be determined by dividing
the amount withdrawn by the Account Value just prior to the withdrawal. If more
than one withdrawal is made during a Participant Year, each percentage will be
added to determine at what point the 10% limit has been reached.
These 10% withdrawals without charge do not reduce Purchase Payments for the
purpose of computing the surrender charge. If a surrender charge is applied to
all or part of a Purchase Payment, no surrender charge will be applied to such
Purchase Payment (or portion thereof) again.
EXCEPTIONS TO SURRENDER CHARGE
No surrender charge will be applied:
- - To money applied to provide a Payout Option;
- - To death benefits;
- - If no Purchase Payments have been received during the 60 months prior to the
date of surrender;
- - If your account has been in effect for 15 years or longer;
- - If your account has been in effect for 5 years or longer, and you have
attained age 59 1/2;
- - To "No Charge Systematic Withdrawals";
- - Under certain contracts, to withdrawals under the No Charge Minimum
Distribution provisions;
PARTICIPANT YEAR -- the first
twelve month period and
then each yearly anniversary
of that period following the
issue date of the contract or
certificate.
22
<PAGE> 130
- --------------------------------------------------------------------------------
- - If you have become totally and permanently disabled, defined as follows: You
are unable, due to mental or physical impairment, to perform the material and
substantial duties of any occupation for which you are suited by means of
education, training or experience; the impairment must have been in existence
for more than 180 days; the impairment must be expected to result in death or
be long-standing and indefinite and proof of disability must be evidenced by a
certified copy of a Social Security Administration determination or a doctor's
verification; or
- - If you are at least 55 years old, are no longer employed by the employer that
established the plan, and your account under the plan was established at least
5 years prior to the date of surrender.
The surrender charge may be reduced or waived if Portfolio Director 2 is issued
to certain types of plans which are expected to result in lower costs to VALIC.
To learn more about how we determine if a surrender charge may be reduced or
waived, see the "Reduction or Waiver of Account Maintenance Fee, Surrender,
Mortality and Expense Risk Fee or Administration and Distribution Fee Charges"
section in this prospectus.
PREMIUM TAX CHARGE
Taxes on Purchase Payments are imposed by some states, cities, and towns. The
rate will range from zero to 3%.
If the law of a state, city, or town requires premium taxes to be paid when
Purchase Payments are made, we will, of course, comply. Otherwise, such tax will
be deducted from the Payout Value when annuity payments are to begin.
If we deduct an amount for premium taxes, but later find the tax was not due, we
will:
- - Adjust the amount deducted in error to reflect investment experience from the
date of the deduction to the date we determined the tax was not due; and
- - Apply the excess amount, as adjusted, to increase the number of Pay-in or
Payout Units.
SEPARATE ACCOUNT CHARGES
There will be a mortality and expense risk fee and an administration and
distribution fee applied to VALIC Separate Account A. This is a daily charge at
an aggregate annualized rate of 0.60% to 0.85% during the Purchase Period and
1.00% to 1.25% during the Payout Period on the average daily net asset value of
VALIC Separate Account A. The exact rate depends on the Variable Account Option
selected. This charge is guaranteed and cannot be increased by the Company. The
mortality and expense risk fee is to compensate the Company for assuming
mortality and expense risks under Portfolio Director. The mortality risk that
the Company assumes is the obligation to provide payments during the Payout
Period for your life no matter how long that might be. In addition, the Company
assumes the obligation to pay during the Purchase Period an interest guaranteed
death benefit. For more information about the interest guaranteed death benefit
see the "Death Benefit" section of this prospectus. The expense risk is our
obligation to cover the cost of issuing and administering Portfolio Director 2,
no matter how large the cost may be.
The Company may make a profit on the mortality and expense risk fee and on the
administration and distribution fee.
The administration and distribution fee is to reimburse the Company for our
administrative expenses for providing Variable Account Options. This includes
the expense of administration and marketing, (including but not limited to
enrollment, participant communication and education).
For more information about the mortality and expense risk fee and on the
administration and distribution fee, see the Fee Table in this prospectus.
The mortality and expense risk fee or administration and distribution fee may be
reduced or waived if issued to certain types of plans that are expected to
result in lower costs to VALIC. To learn more about how we determine if the
mortality and expense risk fee or administration and distribution fee may be
reduced or waived, see the "Reduction or Waiver of Account Maintenance Fee,
Surrender, Mortality and Expense Risk Fee or Administration and Distribution Fee
Charges" section of this prospectus.
FUND ANNUAL EXPENSE CHARGES
Investment management charges based on a percentage of each Fund's average daily
net assets are payable by each Fund. Depending on the Variable Account Option
selected, the charges will be paid by each Fund to its investment adviser. These
charges and other Fund charges and expenses are fully described in the
prospectuses for the Funds. These charges indirectly cost you because they lower
your return.
OTHER TAX CHARGES
We reserve the right to charge for certain taxes (other than premium taxes) that
we may have to pay. This could include federal income taxes. Currently, no such
charges are being made.
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<PAGE> 131
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REDUCTION OR WAIVER OF ACCOUNT
MAINTENANCE FEE, SURRENDER,
MORTALITY AND EXPENSE RISK FEE OR ADMINISTRATION AND DISTRIBUTION FEE CHARGES
We may, as described below, determine that the account maintenance fee,
surrender
charges, mortality and expense risk fee or administration fee for Portfolio
Director 2 may be reduced or waived. We may reduce or waive these fees and
charges if we determine that your retirement program will allow us to reduce or
eliminate administrative or sales expenses that we usually incur for retirement
programs. There are a number of factors we will review in determining whether
your retirement program will allow us to reduce or eliminate these
administrative or sales expenses:
- The type of retirement program.
Certain types of retirement programs because of their stability can result
in lower administrative costs.
- The nature of your retirement program.
Certain types of retirement programs, due to the types of employees who
participate, experience fewer account surrenders thus reducing
administrative costs.
- Other factors of which we are not presently aware which could reduce
administrative costs.
We review the following additional factors to determine whether we can reduce
or waive account maintenance fees:
- The frequency of Purchase Payments for your retirement program.
Purchase Payments received no more than once a year can reduce
administrative costs.
- The administrative tasks performed by your employer for your retirement
program.
The employer sponsoring your retirement program can, through their method
of remitting Purchase Payments, reduce administrative costs.
We review to following additional factors to determine whether we can reduce or
waive surrender charges:
- The size of your retirement program.
A retirement program which involves a larger group of employees may allow
us to reduce sales expenses.
- The total amount of Purchase Payments to be received for your retirement
program.
Larger Purchase Payments can reduce sales expenses.
- The use of mass enrollment or related administrative tasks performed by your
employer for your retirement program.
We review the following additional factors to determine whether we can reduce
or waive the mortality and expense fee or administration and distribution fee:
- The frequency of Purchase Payments for your retirement program.
- The size of your retirement program.
- The amount of your retirement program's periodic purchase payment.
We will only do this if permitted by this Contract and by VALIC guidelines in
effect at the time. In no event will the reduction or waiver of fees and
charges be permitted where the reduction or waiver will unfairly discriminate
against any person.
SEPARATE ACCOUNT EXPENSE
REIMBURSEMENT
Some of the Mutual Funds or their affiliates may have an agreement with the
Company to pay the Company for certain administrative and shareholder services
it provides to the underlying Fund. The Company will reduce its charges to the
Division investing in that Fund by the full amount of any of these payments it
receives. See the Fee Table in this prospectus for an identification of those
Funds for which a reimbursement applies.
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<PAGE> 132
PAYOUT PERIOD
- --------------------------------------------------------------------------------
The Payout Period (Annuity Period) begins when you decide to retire or otherwise
withdraw your money in a steady stream of payments. If your employer's plan
permits, you may apply any portion of your Account Value to one of the types of
Payout Options listed below. You may choose to have your Payout Option on either
a fixed, a variable, or a combination payout basis. When you choose to have your
Payout Option on a variable basis, you may keep the same Variable Account
Options in which your Purchase Payments were made, or transfer to different
ones.
FIXED PAYOUT
Under Fixed Payout, you will receive payments from the Company. These payments
are fixed and guaranteed by the Company. The amount of these payments will
depend on:
- Type and duration of Payout Option chosen;
- Your age or your age and the age of your survivor (1);
- Your sex or your sex and the sex of your survivor (1) (IRA's and certain
nonqualified contracts);
- The portion of your Account Value being applied; and
- The payout rate being applied and the frequency of the payments.
(1) This applies only to joint and survivor payouts.
If the benefit would be greater, the amount of your payments will be based on
the current payout rate the Company uses for immediate annuity contracts.
VARIABLE PAYOUT
With a Variable Payout, you may select up to 7 Variable Account Options. Your
payments will vary accordingly. This is due to the varying investment results
that will be experienced by each of the Variable Account Options you selected.
The Payout Unit Value is calculated just like the Purchase Unit Value for each
Variable Account Option except that the Payout Unit Value includes a factor for
the Assumed Investment Rate you select. For additional information on how Payout
Payments and Payout Unit Values are calculated, see the Statement of Additional
Information.
In determining your first Payout Payment, an Assumed Investment Rate of 3 1/2%
is used (unless you select a higher rate.) If the net investment experience of
the Variable Account Option exceeds your Assumed Investment Rate, your next
payment will be greater than your first payment. If the investment
experience of the Variable Account Option is lower than your Assumed Investment
Rate, your next payment will be less than your first payment.
COMBINATION FIXED AND VARIABLE
PAYOUT
With a Combination Fixed and Variable Payout, you may choose:
- Up to 6 Variable Account Options (payments will vary); with a
- Fixed Payout (payment is fixed and guaranteed).
PAYOUT DATE
The Payout Date is the date elected by you on which your payout (annuity)
payments will start. The date elected must be the first of any month provided 30
days advance notice has been given to VALIC. Your account will be valued ten
days prior to the end of the month preceding the Payout Date. A request to start
payments must be sent to our Home Office on a form approved by VALIC. Generally,
for qualified contracts, the Payout Date may begin when you attain age 59 1/2 or
separate from service, but must begin no later than April 1 following the
calendar year you reach age 70 1/2 or the calendar year in which you retire. For
nonqualified contracts, the Payout Date may begin at any time prior to your 85th
birthday. For additional information on the minimum distribution rules that
apply to payments under 403(b), 401, 403(a) and 457 plans or simplified employee
plans ("SEPs"), see "Federal Tax Matters" in this prospectus and in the
Statement of Additional Information.
PAYOUT OPTIONS
You may specify the manner in which your Payout Payments are made. You may
select one of the following options:
- LIFE ONLY -- payments are made only to you during your lifetime. Under this
option there is no provision for a death benefit for the beneficiary. For
example, it would be possible under this option for the Annuitant to receive
only one payout payment if he died prior to the date of the second payment,
two if he died before the third payment.
- LIFE WITH GUARANTEED PERIOD -- payments are made to you during your
lifetime; but if you die before the guaranteed period has expired, your
beneficiary will receive payments for the rest of your guaranteed period.
PAYOUT UNIT -- a measuring
unit used to calculate Payout
Payments from your Variable
Account Option. Payout Unit
values will vary with the
investment experience of the
VALIC Separate Account A
Division you have selected.
ASSUMED INVESTMENT
RATE -- the rate used to
determine your first monthly
Payout Payment per
thousand dollars of Account
Value in your Variable
Account Option(s).
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<PAGE> 133
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- LIFE WITH CASH OR UNIT REFUND -- payments are made to you during your
lifetime. Upon your death, your beneficiary will receive a lump sum
payment equal to the remaining Annuity Value.
- JOINT AND SURVIVOR LIFE -- payments are made to you during the joint
lifetime of you and your beneficiary. Upon the death of one, payments
continue during the lifetime of the survivor. This option is designed
primarily for couples who require maximum possible variable payouts during
their joint lives and are not concerned with providing for beneficiaries
at death of the last survivor. For example, it would be possible under
this option for the Joint Annuitants to receive only one payment if both
Annuitants died prior to the date of the second payment, or for the Joint
Annuitants to receive only one payment and the surviving Annuitant to
receive only one payment if one Annuitant died prior to the date of the
second payment and the surviving Annuitant dies prior to the date of the
third payment.
- PAYMENT FOR A DESIGNATED PERIOD -- payments are made to you for a select
number of years between five and thirty. Upon your death, payments will
continue to your beneficiary until the designated period is completed.
ENHANCEMENTS TO PAYOUT OPTIONS
You may be able to select enhancements to the Payout Options described above.
These enhancements include partial annuitization, flexible payments of varying
amounts and inflation protection payments. Additionally, certain options may be
available with a one to twenty year guaranteed period. The Joint and Survivor
Life Option may be available with a one to twenty year guaranteed period option.
Not all of the enhancements are available under each option.
PAYOUT INFORMATION
Once your Payout Payments have begun, the option you have chosen may not be
stopped or changed. Any one of the Variable Account Options may result in your
receiving unequal payments during your life expectancy. If payments begin before
age 59 1/2, you may suffer unfavorable tax consequences if you do not meet an
exception to federal tax law. See "Federal Tax Matters" in this prospectus.
Your Payment Option should be selected at least 30 days before your Payout Date.
If such selection is not made:
- Payments will be made under the Life with Guaranteed Period Option, and
- The payments will be guaranteed for a 10 year period, and
- The payments will be based on the allocation used for your Purchase
Payments,
- Fixed Account Option will be used to distribute payments to you on a Fixed
Payout basis,
- Variable Account Options will be used to distribute payments to you on a
Variable Payout basis.
Your first Payout Payment must total at least $25.
Most Payout Payments are made monthly. If the amount of your payment is less
than $25, we reserve the right to reduce the number of payments made each year
so each of your payments are at least $25.
For more information about
PAYOUT OPTIONS OR
ENHANCEMENTS
of those Payout Options
available under the Contract,
see the "Statement of
Additional Information".
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<PAGE> 134
SURRENDER OF ACCOUNT VALUE
- --------------------------------------------------------------------------------
WHEN SURRENDERS ARE ALLOWED
You may withdraw all or part of your Account Value at any time before the Payout
Period begins if:
- allowed under federal and state law; and
- allowed under your employer's plan.
For an explanation of charges that may apply if you surrender your Account
Value, see "Fees and Charges" in this prospectus.
AMOUNT THAT MAY BE SURRENDERED
The amount that may be surrendered at any time can be determined as follows:
<TABLE>
<S> <C> <C>
Your
Account
Allowed Value(1)
Surrender = (EQUALS) - (MINUS)
Value Any Applicable
Surrender
Charge
</TABLE>
1: Equals the Account Value next computed after your properly completed
request for surrender is received in our Home Office.
There is no guarantee that the Surrender Value in a Variable Account Option will
ever equal or exceed the total amount of your Purchase Payments received by us.
We will mail to you the Surrender Value within 7 calendar days after we receive
your properly completed surrender request at our Home Office. However, we may be
required to suspend or postpone payments if redemption of an underlying Fund's
shares have been suspended or postponed. See "Offering, Purchase and Redemption
of Fund Shares" in the Series Company Statement of Additional Information. See
your current Fund(s)' prospectuses for a discussion of the reasons why the
redemption of shares may be suspended or postponed.
We may receive a surrender for a Purchase Payment which has not cleared the
banking system. We may delay payment of that portion of your Surrender Value
until the check clears. The rest of the Surrender Value will be processed as
usual.
SURRENDER RESTRICTIONS
Generally, Internal Revenue Code Section 403(b)(11) permits total or partial
distributions from a 403(b) contract only on account of hardship (employee
contributions only without accrued interest), attainment of age 59 1/2,
separation from service, death or disability.
Under the TEXAS STATE OPTIONAL RETIREMENT PROGRAM, and in many Section 403(b)
contracts, no surrender or partial surrender will be allowed except for
termination of employment, retirement or death.
Under the FLORIDA STATE OPTIONAL RETIREMENT PROGRAM, no surrender or partial
surrender of Purchase Payments made by the employer will be allowed except for
termination of employment, retirement or death. Benefit payments based on
payments from the employer may not be paid in a lump sum or for a period
certain, but must be paid under a life contingency option, except for:
- death benefits; and
- certain small amounts approved by the State of Florida.
PARTIAL SURRENDERS
You may request a partial surrender of your Account Value at any time. A partial
surrender plus any surrender charge will reduce your Account Value. Partial
surrenders will be paid from the Fixed Account Options first unless otherwise
specified by you.
The reduction in the number of Purchase Units credited to your Variable Account
Option Account Value will equal:
<TABLE>
<S> <C> <C>
The amount Your Purchase
surrendered Units next
from the Variable computed after
Account Option the written
+ (PLUS) / (DIVIDED BY) request for
Any Surrender surrender is
Charge received at our
Home Office.
</TABLE>
The Surrender Value will be reduced by a full quarterly account maintenance fee
charged in the case of a full surrender during a quarter.
SYSTEMATIC WITHDRAWALS
You may elect to withdraw all or part of your Account Value under a systematic
withdrawal method described in your annuity contract offered by Portfolio
Director 2. There will be no surrender charge for withdrawals using this method,
which provides for:
- Payments to be made to you;
- Payment over a stated period of time (but not less than five years);
- Payment of a stated yearly dollar amount or percentage (the amount or
percentage may not exceed 20% of your Account Value at the time election is
made).
We may require a minimum withdrawal amount under this method. The portion of
your account that has not been withdrawn will continue to receive the investment
return of the Variable Account Options which you selected. A systematic
withdrawal election may not be changed but can be revoked at no charge. Once
revoked, a systematic withdrawal may not be elected again. No
27
<PAGE> 135
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more than one systematic withdrawal election may be in effect at any one time.
We reserve the right to discontinue any or all systematic withdrawals or to
change its terms, at any time.
DISTRIBUTIONS REQUIRED BY FEDERAL TAX LAW. There will be no surrender charge on
a minimum distribution required by federal tax law (known as No Charge Minimum
Distribution), if the withdrawal:
- Is made payable to you; and
- Does not exceed the amount required under federal tax law as determined by
the values in your Portfolio Director 2 Contract and VALIC.
This contract feature will not be available in any year that an amount has been
withdrawn under the no charge systematic withdrawal method. See "Federal Tax
Matters" in this prospectus and in the Statement of Additional Information for
more information about required distributions imposed by tax law.
For an explanation of possible adverse tax consequences of a surrender, see
"Federal Tax Matters" in this prospectus and in the Statement of Additional
Information.
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<PAGE> 136
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
We issue other fixed and/or variable annuity contracts (other contracts) in
addition to Portfolio Director 2. These other contracts are listed below. We
will allow you, under certain conditions, to exchange from one of these other
contracts to Portfolio Director 2. This exchange privilege will be available
only to other contracts purchased through your employer-sponsored retirement
plan and for which we have not yet started making payments under a Payout
Option. If you elect to exercise one of these exchange offers, you should
contact any of our Regional Offices at the addresses shown in the back of this
prospectus.
RESTRICTIONS ON EXCHANGE PRIVILEGE
We will impose certain general restrictions and rules on the exchange
privileges.
- Partial exchanges are not permitted.
- Exchanges from Portfolio Director 2 to other contract forms are not
permitted (Exchanges between Portfolio Director 2 and other contracts in the
Portfolio Director series of annuities are permitted.)
- This exchange privilege is only available for those other contracts listed
below.
Additionally, if you have your money in a fixed account of one of the below
listed other contracts, you must exchange directly into the Fixed Account
Options of Portfolio Director 2. You will be subject to all of the rules that
apply to the Fixed Account Options in Portfolio Director 2. For example, you
will be subject to the rules concerning transfers among investment options as
stated in the Transfers Between Investment Options section in this prospectus.
We may, at our option, waive any transfer restrictions for a stated period of
time. If we waive these transfer restrictions, you will be allowed to exchange
to any investment option available in Portfolio Director 2.
WE RESERVE THE RIGHT TO TERMINATE, MODIFY OR SUSPEND THESE EXCHANGE PRIVILEGES
AT ANY TIME.
TAXES AND CONVERSION COSTS
We will impose no fee or charge for these exchanges. Please read the "Federal
Tax Matters" section in this prospectus for information about the federal income
tax treatment of Portfolio Director 2.
SURRENDER CHARGES
We will generally not impose nor waive existing surrender charges as a result of
your electing to exchange from one of the other contracts.
For purposes of determining surrender charges, we often consider time in the
contract. For SPQ181 and SPQ181-1 Contracts, the contract date for determining
surrender charges under Portfolio Director 2 will be the SPQ181 and SPQ181-1
contract date plus one year. For example, if you have an SPQ181 contract with a
contract date of January 1, 1993, upon exchange into Portfolio Director 2, the
contract date for surrender charges purposes becomes January 1, 1994.
For any other contract, the contract date for determining surrender charges
under Portfolio Director 2 will be the same date as the other contract, but no
earlier than January 1, 1982. (The effect of this is to potentially shorten the
charge period for Purchase Payments subsequently made to Portfolio Director 2.)
If there is no surrender charge on assets within another contract, we will not
impose charges on those assets as a result of an exchange. If surrender charges
are to be based on Purchase Payments within a contract, we will consider
purchase payments in the other contract to have been transferred to Portfolio
Director 2 for purposes of calculating the surrender charge. The effective dates
of these Purchase Payments will also be retained for surrender charge purposes.
The Portfolio Director 2 surrender charge is calculated assuming the most recent
Purchase Payments are removed first. This policy may cause exchanged funds to be
accessible only after charges are imposed.
EXCHANGE OFFERS FOR CONTRACTS OTHER THAN
PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
The following other contracts may be exchanged.
- V-Plan Contracts (IFA-582 and GFA-582 Contracts)
- Compounder Contracts (C-1-75 and IFA-78 Contracts)
- Independence Plus Contracts (UIT-585 and UITG-585 Contracts)
- Impact Contracts (UIT-981 Contracts)
- SA-1 or SA-2 (GUP-64, GUP-74 and GTS-VA Contracts)
- FSPA-75, FSPA-73-3, FSPA-779 Contracts
- SPQ181, SPQ181-1 Contracts
- CTA 978 Contract
- TFA-379 Contract
- SDA-578, SDA-773-T Contract
- IRA-579 Contracts
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<PAGE> 137
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Portfolio Director 2 will have the same Account Value (called Accumulation Value
in the other contracts) as the other contracts.
EXCHANGE OFFER FOR PORTFOLIO DIRECTOR AND PORTFOLIO DIRECTOR 2
Subject to the restrictions stated below and the general restrictions on
exchange privileges stated above you may exchange from Portfolio Director to
Portfolio Director 2. You may also exchange from Portfolio Director 2 to
Portfolio Director. Additionally, you may also make exchanges among the series
of Portfolio Director 2. Once you have made any of the exchanges described in
this paragraph you must wait 120 days before making another exchange between
Portfolio Director and Portfolio Director 2.
Both Portfolio Director and Portfolio Director 2 are available to qualified
contracts and certain non-qualified contracts. Portfolio Director 2 is not
available to non-qualified contracts issued to individuals. Please read the
"Federal Tax Matters" in this prospectus for information about the federal
income tax treatment of Portfolio Director 2.
COMPARISON OF CONTRACTS
You should carefully compare the features, charges and restrictions of the other
contracts to those of Portfolio Director 2. A more detailed comparison of the
features, charges, and restrictions between each above listed other contract and
Portfolio Director 2 is provided in the Statement of Additional Information.
Portfolio Director and Portfolio Director 2 contain the same provisions except
as to the level of fees and as to available Variable Account Options and certain
Separate Account Expense Reimbursements. See "Fees and Changes" in this
prospectus.
For the V-Plan and Compounder Contract you should refer to the terms of the
contract or certificate. For the other contracts please refer to its most
recently dated prospectus for a complete description of the contract terms and
conditions. Those prospectuses are incorporated herein by reference. If you want
an additional copy of any of these prospectuses or Statements of Additional
Information, please contact us at the address shown in the introduction of the
prospectus.
Please refer to the prospectus and Statement of Additional Information for
Portfolio Director and the different series of Portfolio Director 2 for
information about the specific features and charges of such products.
FEATURES OF PORTFOLIO DIRECTOR 2
In deciding whether you want to exercise these exchange privileges, you should
consider the following factors of Portfolio Director 2.
- Portfolio Director 2 has more investment options to select from.
- Portfolio Director 2 has 12 publicly available mutual funds as investment
options.
- The Portfolio Director 2 surrender charge is calculated assuming the most
recent Purchase Payments are removed first. This policy may cause exchanged
funds to be accessible only after charges are imposed.
- Portfolio Director 2 has an Interest Guaranteed Death Benefit.
- Portfolio Director 2's Fund fees and charges are different than the other
contracts and in some cases may be higher.
- Different series of Portfolio Director 2 may charge fees higher or lower
than other series of Portfolio Director 2.
- Portfolio Director 2's guaranteed annuity rates and guaranteed interest
rates may be less favorable than the other contracts.
AGENTS' AND MANAGERS' RETIREMENT PLAN
EXCHANGE OFFER
General. All eligible agents and managers of the Company are allowed to
participate in the Company's Agents' and Managers' Retirement Plan ("Plan"). We
grant to participants in the Plan the right to effect a voluntary exchange of
their units of interest under the SA-1 Contracts, Independence Plus Contracts
and Portfolio Director for the equivalent units of interest in Portfolio
Director 2.
Agents and managers of VALIC who enter into the voluntary exchange will not
incur under Portfolio Director 2 any surrender charges or account maintenance
fees. Other individuals who may exchange to Portfolio Director 2 from SA-1,
Independence Plus or Portfolio Director Contracts may have surrender charges and
account maintenance fees imposed under Portfolio Director 2. All other
provisions with regard to exchange offers referenced in the section entitled
"Exchange Offers" will apply to the Agents' and Managers' Retirement Plan
Exchange Offer.
Pursuant to this voluntary exchange offer, participants in the Plan will have
three options to choose from. As to the funding vehicle for
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<PAGE> 138
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their purchase payment plan, the participant may choose to:
- Remain in the SA-1 Contract, Independence Plus Contract or Portfolio
Director.
- Leave current assets in the SA-1 Contract, Independence Plus or Portfolio
Director and direct future Purchase Payments to Portfolio Director 2; or
- Transfer all current assets and future Purchase Payments to Portfolio
Director 2.
If the participant chooses to remain in either the SA-1 Contract, Independence
Plus Contract or Portfolio Director, future Purchase Payments and current assets
will be controlled by the provisions of the SA-1 Contract, Independence Plus
Contract or Portfolio Director, respectively. If the participant chooses to
leave current assets in the SA-1 Contract, the Independence Plus Contract or
Portfolio Director and direct future Purchase Payments to Portfolio Director 2,
the current assets will be controlled by the provisions of the SA-1 Contract,
the Independence Plus Contract or Portfolio Director, respectively. The future
Purchase Payments will be controlled by the terms of Portfolio Director 2
subject to the exception that surrender charges and account maintenance fees
will not be imposed under Portfolio Director 2. If the participant chooses to
transfer all current assets and future Purchase Payments to Portfolio Director
2, such current assets and future Purchase Payments will be controlled by the
provisions of Portfolio Director 2 subject to the exception that surrender
charges and account maintenance fees will not be imposed under Portfolio
Director 2.
Once a participant transfers assets and future Purchase Payments to Portfolio
Director 2 the participant will not be permitted to exchange back to the SA-1
Contract or Independence Plus Contract. Exchanges to Portfolio Director will be
permitted. See "Exchange Offer for Portfolio Director and Portfolio Director 2"
in this prospectus. If a participant chooses to transfer future Purchase
Payments but not current assets to Portfolio Director 2, the participant will be
allowed at a later date to transfer the current assets to Portfolio Director 2.
For a complete analysis of the differences between the SA-1 contract, the
Independence Plus Contract or Portfolio Director and Portfolio Director 2, you
should refer to the Statement of Additional Information and the form of the
contract or certificate for its terms and conditions.
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<PAGE> 139
DEATH BENEFITS
- --------------------------------------------------------------------------------
Portfolio Director 2 will pay death benefits during either the Purchase Period
or the Payout Period. How these death benefits will be paid are discussed below.
The death benefit provisions in Portfolio Director 2 may vary from state to
state.
BENEFICIARY INFORMATION
The Beneficiary may receive death benefits:
- - In a lump sum; or
- - In the form of an annuity under any of the Payout Options stated in the Payout
Period section of this prospectus subject to the restrictions of that Payout
Option.
Payment of any death benefits must be within the time limits set by federal tax
law.
Beneficiaries Other Than Spouses.
If the Beneficiary is not the spouse of the Annuitant, death benefits must be
paid.
- - In full within 5 years after the Annuitant's death; or
- - By payments beginning within 1 year after the Annuitant's death under:
- A life annuity;
- A life annuity with payments certain; or
- An annuity for a designated period.
If the Annuitant dies before the Annuity Date, the Beneficiary as named by you
may receive the payout.
Payments certain or payments for a designated period cannot be for a greater
period of time than the Beneficiary's life expectancy. After choosing a payment
option, a Beneficiary may exercise many of the investment options and other
rights that the Participant or Contract Owner had under Portfolio Director 2.
SPECIAL INFORMATION FOR INDIVIDUAL
NON-TAX QUALIFIED CONTRACTS
It is possible that the Contract Owner and the Annuitant under a Non-Tax
Qualified Contract are not the same person. If this is the case, and the
Contract Owner dies, there will be no death benefit payable since the death
benefit is only due in the event of the Annuitant's death. However, the Contract
will be transferred to the
Contingent Owner, if any, or to the Contract Owner's estate. Such transfers will
be considered a taxable event by the IRS.
DURING THE PURCHASE PERIOD
Two types of benefits are available if death occurs during the Purchase Period.
Interest Guaranteed Death Benefit and Standard Death Benefit.
INTEREST GUARANTEED DEATH BENEFIT
The interest guaranteed death benefit is payable when death occurs prior to your
reaching the age of 70. This contract provision is not available in some states.
The amount payable under the interest guaranteed death benefit will be at least
equal to the sum of your Account Value in the Fixed Account Option(s) and the
Variable Account Option(s) on the date VALIC receives proof of death.
Here is how to calculate the death benefit:
Step 1: Determine your Fixed Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Fixed Account Option on date
proof of death Is received by VALIC
OR
100% of Purchase Payments placed
in Fixed Account Option
- - (MINUS)
Amount of all prior withdrawals, charges and
any portion of Account Value applied under
a Payout Option
</TABLE>
Step 2: Determine your Variable Account Option Value by taking the greater of:
<TABLE>
<S> <C> <C>
Value of Variable Account Option on date
proof of death is received by VALIC
OR
100% of Purchase Payments placed in
Variable Account Options
- - (MINUS)
Prior withdrawals (out of) or transfers
(out of) the Variable Account Option
+ (PLUS)
Interest at an annual rate of 3%
</TABLE>
- --------------------------------------------------
Step 3: Add step 1 + 2 = Death Benefit
For purposes of this calculation amounts transferred into the Variable Account
Option will be treated as Purchase Payments.
BENEFICIARY -- the person
designated to receive Payout
Payments upon the death of
an Annuitant.
ANNUITANT -- the individual,
(in most cases this person is
you) to whom Payout
Payments will be paid.
CONTRACT OWNER -- either
your employer or organization
in the case of a group
contract or the Annuitant in
the case of an individual
contract. If the contract is an
individual non-qualified type,
this is generally the Annuitant
but a Contingent Contract
Owner may also be provided
for.
FIXED ACCOUNT OPTIONS -- a
particular subaccount into
which your Purchase
Payments and Account Value
may be allocated to fixed
investment options. Currently,
the Fixed Account Options in
Portfolio Director 2 are Fixed
Account Plus and Short-Term
Fixed Account. Each option
of this type is guaranteed to
earn at least a minimum rate
of interest.
VARIABLE ACCOUNT
OPTIONS -- Investment
Options that correspond to
VALIC Separate Account A
Divisions offered by Portfolio
Director 2. Investment returns
on Variable Account Options
will be positive or negative
depending on the investment
performance of the
underlying mutual fund.
32
<PAGE> 140
- --------------------------------------------------------------------------------
STANDARD DEATH BENEFIT
The standard death benefit is payable if death occurs on or after age 70.
The Standard Death Benefit will be the greater of:
<TABLE>
<S> <C> <C>
Your Account Value on the Date Proof of Death is
Received by VALIC
OR
100% of Purchase Payments (to Fixed
and/or Variable Account Options)
- -- (MINUS)
Amount of all Prior Withdrawals, Charges
and any portion of Account Value applied
under a Payout Option
</TABLE>
DURING THE PAYOUT PERIOD
If death occurs during the Payout Period, your Beneficiary may receive a death
benefit depending on the Payout Option selected. The amount of death benefits
will also depend on the Payout Option that you selected. The Payout Options
available in Portfolio Director 2 are described in the "Payout Period" section
of this prospectus.
- If the Life Only Option or Joint and Survivor Life Option were chosen, there
will be no death benefit.
- If the Life With Guaranteed Period Option, Joint and Survivor Life with
Guaranteed Periods Option, Life with Cash or Unit Refund Option or Payment
for a Designated Period Option were chosen, and the entire amount guaranteed
has not been paid, the Beneficiary may choose one of the following within 60
days after death benefits are payable:
- Receive the present value of any remaining payments in a lump sum; or
- Receive the remaining payments under the same terms of the guaranteed
period option chosen by the deceased Participant; or
- Receive the present value of any remaining payments applied under the
Payment for a Designated Period Option for a period equal to or shorter
than the period remaining. Spouse beneficiaries may be entitled to more
favorable treatment under federal tax law.
Under federal tax laws if the Life with Guaranteed Periods Option is chosen on a
variable basis, it may be treated in the same manner as a surrender of your
Portfolio Director 2 account. If your account is surrendered the full amount
your Beneficiary receives will normally be treated as income for that year. This
amount generally will also be taxed at rates used for ordinary income.
33
<PAGE> 141
HOW TO REVIEW INVESTMENT PERFORMANCE
OF SEPARATE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
We will advertise information about the investment performance of VALIC Separate
Account A Divisions. Our advertising of past investment performance results does
not mean that future performance will be the same. The performance information
will not predict what your actual investment experience will be in that Division
or show past performance under an actual contract. We may also show how the
Divisions rank on the basis of data compiled by independent ranking services.
Some of the Divisions (and underlying Funds) offered in this prospectus were
previously available through other annuity contracts or to the general public
before Portfolio Director 2 was first available to you. We may therefore,
advertise investment performance since the inception of the underlying Funds.
However, in doing so, we will use the charges and fees imposed by Portfolio
Director 2 in calculating the Division's investment performance for earlier time
frames.
TYPES OF INVESTMENT PERFORMANCE
INFORMATION ADVERTISED
We may advertise the Division's Total Return Performance information and Yield
Performance information.
TOTAL RETURN PERFORMANCE
INFORMATION
Total Return Performance Information is based on the overall dollar or
percentage change in value of an assumed investment in a Division over a given
period of time.
There are seven ways Total Return Performance Information may be advertised:
- Standard Average Annual Total Return
- Nonstandard Average Annual Total Return
- Cumulative Total Return
- Annual Change in Purchase Unit Value
- Cumulative Change in Purchase Unit Value
- Total Return Based on Different Investment Amounts
- An Assumed Account Value of $10,000
Each of these is described below.
STANDARD AVERAGE ANNUAL TOTAL RETURN
Standard Average Annual Total Return shows the average percentage change in the
value of an investment in the Division from the beginning to the end of a given
historical period. The results shown are after all charges and fees have been
applied against the
Division. This will include account maintenance fees and surrender charges that
would have been deducted if you surrendered Portfolio Director 2 at the end of
each period shown. Premium taxes are not deducted. This information is
calculated for each Division based on how an initial assumed payment of $1,000
performed at the end of 1, 3, 5 and 10 year periods.
The return for periods of more than one year are annualized to obtain the
average annual percentage increase (or decrease) during the period.
Annualization assumes that the application of a single rate of return each year
during the period will produce the ending value, taking into account the effect
of compounding.
NONSTANDARD AVERAGE ANNUAL TOTAL
RETURN
Nonstandard Average Annual Total Return is calculated in the same manner as the
Standard Average Annual Total Return. However, Nonstandard Average Annual Total
Return shows only the historic investment results of the Division. Account
maintenance fees, surrender charges and premium taxes are not deducted.
CUMULATIVE TOTAL RETURN
Cumulative Total Return assumes the investment in Portfolio Director 2 will stay
in the Division beyond the time that a surrender charge would apply. It may be
calculated for 1, 3, 5 and 10 year periods. It is based on an assumed initial
investment of $10,000. The Cumulative Return will be calculated without
deduction of account maintenance fees, surrender charges or premium taxes.
ANNUAL CHANGE IN PURCHASE UNIT VALUE
Annual Change in Purchase Unit Value is a percentage change during a one year
period. This is calculated as follows:
- The Purchase Unit Value at the start of the year is subtracted from the
Purchase Unit Value at the end of the year;
- The difference is divided by the Purchase Unit Value at the start of the
year.
Account maintenance fees, surrender charges and premium taxes are not deducted.
The effect of these charges, if deducted, would reduce the Division's Annual
Change in Purchase Unit Value.
DIVISIONS -- Subaccounts of
VALIC Separate Account A
which represent the Variable
Account Options in Portfolio
Director 2. Each Division
invests in a different mutual
fund, each having its own
investment objective and
strategy.
PURCHASE PAYMENTS -- an
amount of money you pay to
VALIC to receive the benefits
of an annuity Contract offered
by Portfolio Director 2.
For more information on how
TOTAL RETURN PERFORMANCE
INFORMATION is calculated,
see the Statement of
Additional Information.
34
<PAGE> 142
- --------------------------------------------------------------------------------
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
Cumulative Change in Purchase Unit Value is a percentage change from the
beginning to the ending of a period usually greater than one year. Otherwise, it
is calculated in the same way as the Annual Change in Purchase Unit Value.
TOTAL RETURN BASED ON DIFFERENT
INVESTMENT AMOUNTS
We may show total return information based on different investment amounts. For
example, we may show $200 a month for 10 years, or $100 a month to age 65. Fees
may or may not be included. Each performance illustration will explain the
Portfolio Director 2 charges and fees imposed on the Division.
AN ASSUMED ACCOUNT VALUE OF $10,000
We may show annual changes in the Purchase Unit Value based on an initial
investment of $10,000. This will not reflect any deduction for account
maintenance fees, surrender charges and premium taxes.
YIELD PERFORMANCE INFORMATION
We may advertise Yield Performance, at a given point in time. A Division's yield
is one way of showing the rate of income the Division is earning as a percentage
of the Division's Purchase Unit Value.
AGSPC MONEY MARKET DIVISION
We may advertise the AGSPC Money Market Division's Current Yield and Effective
Yield.
The Current Yield refers to the income produced by an investment in the AGSPC
Money Market Division over a given 7-day period. The Current Yield does not take
into account surrender charges, account maintenance fees or premium taxes. The
income produced over a 7 day period is then "annualized." This means we are
assuming the amount of income produced during the 7-day period will continue to
be produced each week for an entire year. The annualized amount is shown as a
percentage of the investment. The 7-day Current Yield for the last 7 days ended
September 30, 1997 was 4.35%.
The Effective Yield is calculated in a manner similar to the Current Yield. But,
when the yield is annualized the income earned is assumed to be reinvested. The
compounding effect will cause the Effective Yield to be higher than the Current
Yield. The 7-day Effective Yield for the last 7 days ended September 30, 1997
was 4.45%.
DIVISIONS OTHER THAN THE AGSPC MONEY MARKET DIVISION
We may advertise the standardized yield performance for each Division other than
the AGSPC Money Market Division. The yield for each of these Divisions will be
determined as follows:
- We will subtract the account maintenance fee from the average daily net
investment income per Purchase Unit;
- We will divide the remainder by the Purchase Unit Value on the last day of
the period; and
- We will annualize the result.
PERFORMANCE INFORMATION:
AVERAGE ANNUAL TOTAL RETURN, CUMULATIVE RETURN AND ANNUAL AND CUMULATIVE CHANGE
IN PURCHASE UNIT VALUE TABLES.
In the sections above we have described a number of ways we may advertise
information about the investment performance of VALIC Separate Account A
Divisions. Certain performance information for each VALIC Separate Account A
Division is printed in the four tables below.
The information presented does not reflect the advantage under Portfolio
Director 2 of deferring federal income tax on increases in Account Value due to
earnings attributable to Purchase Payments (see "Federal Tax Matters" in the
prospectus and in the Statement of Additional Information.) The information
presented also does not reflect the advantage under Qualified Contracts of
deferring federal income tax on Purchase Payments.
The performance information presented in the following tables reflects the
performance of the underlying Fund after deduction of a mortality and expense
risk fee and administration and distribution fee at an aggregate annualized rate
of 0.60% to 0.85% during the Purchase Period on the daily average net asset
value of VALIC Separate Account A. The exact rate depends upon the Variable
Account Option selected.
35
<PAGE> 143
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Participant.
TABLE I
AVERAGE ANNUAL TOTAL RETURN
WITH SURRENDER CHARGE AND ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15).................... 04/29/94 23.09% -- -- 26.58% 17.06%
AGSPC International Government Bond (Division
13)......................................... 10/01/91 7.49 -- 4.28% 4.14 (6.03)
AGSPC Money Market (Division 6)............... 01/16/86 -- 4.69% 2.69 2.93 (0.29)
AGSPC Science & Technology (Division 17)...... 04/29/94 32.08 -- -- 31.72 11.45
AGSPC Social Awareness (Division 12).......... 10/02/89 14.51 -- 19.02 28.44 33.73
AGSPC Stock Index (Division 10)............... 04/20/87 -- 13.05 19.06 27.75 34.29
American Century -- Twentieth Century Ultra
(Division 31)............................... 11/02/81 -- 17.67 21.32 24.48 22.63
Founders Growth (Division 30)................. 01/05/62 -- 15.01 23.64 27.46 25.49
Neuberger&Berman Guardian Trust (Division
29)(1)...................................... 06/01/50 -- 14.52 18.94 23.34 32.96
Putnam Global Growth (Division 28)............ 09/01/67 -- 8.78 15.00 14.24 19.93
Putnam New Opportunities (Division 26)........ 08/31/90 28.83 -- 26.64 24.31 8.72
Putnam OTC & Emerging Growth (Division 27).... 11/01/82 -- 14.87 23.52 24.07 1.84
Scudder Growth and Income (Division 21)(2).... 11/13/84 -- 13.68 19.42 24.12 34.18
Templeton Foreign (Division 32)............... 10/05/82 -- 11.52 14.17 11.45 18.95
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)......................................... 07/09/73 -- 10.08 6.77 9.39 7.30
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23)......................................... 05/19/86 -- 9.68 6.78 9.39 6.37
Vanguard/Wellington (Division 25)............. 07/01/29 -- 11.81 14.83 19.91 21.49
Vanguard/Windsor II (Division 24)............. 06/24/85 -- 13.86 18.91 26.77 32.40
</TABLE>
- ---------------
* The returns shown are since inception of the underlying Funds that have been
in existence for less than ten years.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
(1) Neuberger&Berman Guardian Trust ("Trust") started operating on August 3,
1993. It has identical investment objectives and policies and invests in the
same portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also
managed by Neuberger&Berman Management Incorporated ("N&B Management"). The
performance information for the Trust before August 3, 1993 is for the Fund.
N&B Management voluntarily bears certain operating expenses of the Trust so
that the Trust's expense ratio per annum will not exceed the expense ratio
per annum of the Fund by more than 0.10% of the Trust's average daily net
assets per annum. This arrangement can be terminated on sixty days' prior
written notice. Absent such arrangement, the average annual total returns of
the Trust would have been less. The total returns for periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
(2) The Fund adopted its current name and objective on November 13, 1984. Its
predecessor commenced operations on May 31, 1929.
36
<PAGE> 144
TABLE II
AVERAGE ANNUAL TOTAL RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15).......................... 04/29/94 24.12% -- -- 27.74% 22.15%
AGSPC International Government Bond
(Division 13)..................................... 10/01/91 7.61 -- 5.23% 5.76 (1.53)
AGSPC Money Market (Division 6)..................... 01/16/86 -- 4.82% 3.69 4.58 4.48
AGSPC Science & Technology (Division 17)............ 04/29/94 32.99 -- -- 32.80 16.54
AGSPC Social Awareness (Division 12)................ 10/02/89 14.65 -- 19.65 29.58 38.83
AGSPC Stock Index (Division 10)..................... 04/20/87 -- 13.19 19.69 28.89 39.40
American Century -- Twentieth Century Ultra
(Division 31)..................................... 11/02/81 -- 17.77 21.88 25.65 27.72
Founders Growth (Division 30)....................... 01/05/62 -- 15.10 24.17 28.58 30.58
Neuberger&Berman Guardian Trust (Division 29)(1).... 06/01/50 -- 14.61 19.53 24.53 38.06
Putnam Global Growth (Division 28).................. 09/01/67 -- 8.87 15.66 15.60 25.02
Putnam New Opportunities (Division 26).............. 08/31/90 28.94 -- 27.13 25.48 13.80
Putnam OTC & Emerging Growth (Division 27).......... 11/01/82 -- 14.96 24.05 25.24 6.71
Scudder Growth and Income (Division 21)............. 11/13/84 -- 13.77 20.01 25.30 39.28
Templeton Foreign (Division 32)..................... 10/05/82 -- 11.61 14.84 12.87 24.04
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio (Division 22)................. 07/09/73 -- 10.17 7.61 10.84 12.34
Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio (Division 23)............. 05/19/86 -- 9.77 7.63 10.85 11.46
Vanguard/Wellington (Division 25)................... 07/01/29 -- 11.91 15.49 21.15 26.58
Vanguard/Windsor II (Division 24)................... 06/24/85 -- 13.96 19.51 27.90 37.50
</TABLE>
TABLE III
CUMULATIVE RETURN
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
FUND
INCEPTION SINCE
FUND AND DIVISION** DATE INCEPTION* 10 YEARS 5 YEARS 3 YEARS 1 YEAR
------------------- --------- ---------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)...................... 04/29/94 109.58% -- -- 108.46% 22.15%
AGSPC International Government Bond (Division
13)........................................... 10/01/91 55.38 -- 29.05% 18.29 (1.53)
AGSPC Money Market (Division 6)................. 01/16/86 -- 60.17% 19.87 14.39 4.48
AGSPC Science & Technology (Division 17)........ 04/29/94 165.50 -- -- 134.23 16.54
AGSPC Social Awareness (Division 12)............ 10/02/89 198.56 -- 145.22 117.85 38.83
AGSPC Stock Index (Division 10)................. 04/20/87 -- 245.09 145.60 114.11 39.40
American Century -- Twentieth Century Ultra
(Division 31)................................. 11/02/81 -- 413.16 168.93 98.36 27.72
Founders Growth (Division 30)................... 01/05/62 -- 308.16 195.14 112.60 30.58
Neuberger&Berman Guardian Trust (Division
29)(1)........................................ 06/01/50 -- 291.18 144.03 93.13 38.06
Putnam Global Growth (Division 28).............. 09/01/67 -- 133.97 107.02 54.47 25.02
Putnam New Opportunities (Division 26).......... 08/31/90 506.37 -- 232.09 97.56 13.80
Putnam OTC & Emerging Growth (Division 27)...... 11/01/82 -- 303.28 193.70 96.46 6.71
Scudder Growth and Income (Division 21)......... 11/13/84 -- 263.43 148.91 96.71 39.28
Templeton Foreign (Division 32)................. 10/05/82 -- 199.92 99.77 43.79 24.04
Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio
(Division 22)................................. 07/09/73 -- 163.45 44.31 36.18 12.34
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio
(Division 23)................................. 05/19/86 -- 153.92 44.43 36.22 11.46
Vanguard/Wellington (Division 25)............... 07/01/29 -- 208.00 105.46 77.83 26.58
Vanguard/Windsor II (Division 24)............... 06/24/85 -- 269.39 143.76 109.24 37.50
</TABLE>
- ---------------
* The returns shown are since inception of the underlying Funds that have been
in existence for less than ten years.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
37
<PAGE> 145
TABLE IV
ANNUAL AND CUMULATIVE CHANGE IN PURCHASE UNIT VALUE
WITH NO SURRENDER CHARGE OR ACCOUNT MAINTENANCE FEE IMPOSED
<TABLE>
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE
12 MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... 22.15% 22.57% 39.23% 0.55% --
AGSPC International Government Bond
(Division 13)*........................... (1.53) 3.60 15.96 3.52 5.39%
AGSPC Money Market (Division 6)........... 4.48 4.47 4.80 2.65 2.09
AGSPC Science & Technology (Division
17)*..................................... 16.53 16.53 72.48 13.37 --
AGSPC Social Awareness (Division 12)*..... 38.83 21.06 29.44 (1.66) 14.62
AGSPC Stock Index (Division 10)........... 39.40 19.38 28.67 2.24 12.19
American Century -- Twentieth Century
Ultra (Division 31)...................... 27.72 10.28 40.83 (8.77) 48.61
Founders Growth (Division 30)............. 30.58 17.94 38.04 (3.58) 43.98
Neuberger&Berman Guardian Trust (Division
29)(1)................................... 38.06 6.42 31.45 5.42 19.86
Putnam Global Growth (Division 28)........ 25.02 14.05 8.34 9.92 21.93
Putnam New Opportunities
(Division 26)*........................... 13.80 25.52 38.30 6.31 58.13
Putnam OTC & Emerging Growth (Division
27)...................................... 6.71 25.84 46.29 2.24 46.23
Scudder Growth and Income (Division 21)... 39.28 19.11 18.57 7.15 18.09
Templeton Foreign (Division 32)........... 24.04 9.42 5.94 16.33 19.43
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 12.34 1.92 18.94 (7.83) 14.98
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 11.46 0.59 21.49 (10.85) 18.93
Vanguard/Wellington (Division 25)......... 26.58 14.39 22.81 2.04 13.23
Vanguard/Windsor II (Division 24)......... 37.50 19.60 27.23 0.20 16.27
<CAPTION>
ANNUAL CHANGE IN PURCHASE UNIT VALUE FOR THE
12 MONTHS ENDED SEPTEMBER 30
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ------------------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*............... -- -- -- -- --
AGSPC International Government Bond
(Division 13)*........................... 20.43% -- -- -- --
AGSPC Money Market (Division 6)........... 3.13 5.68% 7.36% 8.38% 5.36%
AGSPC Science & Technology (Division
17)*..................................... -- -- -- -- --
AGSPC Social Awareness (Division 12)*..... 6.77 26.36 (9.75) -- --
AGSPC Stock Index (Division 10)........... 9.61 28.43 (10.29) 29.26 (13.92)
American Century -- Twentieth Century
Ultra (Division 31)...................... 0.58 82.71 (12.86) 45.59 (18.16)
Founders Growth (Division 30)............. 3.72 33.45 (19.35) 49.68 (17.23)
Neuberger&Berman Guardian Trust (Division
29)(1)................................... 16.17 37.77 (18.14) 26.11 (2.98)
Putnam Global Growth (Division 28)........ (0.06) 21.47 (10.58) 27.50 (18.34)
Putnam New Opportunities
(Division 26)*........................... 12.43 77.20 8.35) -- --
Putnam OTC & Emerging Growth (Division
27)...................................... 7.58 43.03 (23.52) 33.90 (12.86)
Scudder Growth and Income (Division 21)... 11.64 27.13 (11.59) 31.69 (11.64)
Templeton Foreign (Division 32)........... 3.67 15.54 2.18 29.16 (5.02)
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio (Division
22)...................................... 15.50 19.59 1.98 12.41 15.28
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio
(Division 23)............................ 11.78 19.57 0.71 13.74 14.85
Vanguard/Wellington (Division 25)......... 10.50 24.84 (9.22) 21.08 (1.15)
Vanguard/Windsor II (Division 24)......... 13.75 31.66 (18.89) 30.51 (4.42)
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR
EACH PERIOD SINCE 09/30/87
--------------------------------------------------------
FUND AND DIVISION** 1997 1996 1995 1994 1993
- ------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*................. 109.62% 71.60% 40.00% 0.55% --
AGSPC International Government Bond
(Division 13)*............................. 55.41 57.82 52.34 31.38 26.92%
AGSPC Money Market (Division 6)............. 60.17 53.30 46.74 40.02 36.41
AGSPC Science & Technology
(Division 17)*............................. 165.54 127.86 95.54 13.37 --
AGSPC Social Awareness (Division 12)*....... 198.61 115.09 77.66 37.25 39.58
AGSPC Stock Index (Division 10)............. 245.09 147.56 107.38 61.17 57.64
American Century -- Twentieth Century Ultra
(Division 31).............................. 413.14 301.76 264.31 158.68 183.54
Founders Growth (Division 30)............... 308.17 212.58 165.03 91.99 99.12
Neuberger&Berman Guardian Trust (Division
29)(1)..................................... 291.17 183.33 166.24 102.54 92.12
Putnam Global Growth (Division 28).......... 133.98 87.16 64.10 51.47 37.81
Putnam New Opportunities (Division 26)*..... 506.37 432.81 324.48 206.93 188.73
Putnam OTC & Emerging Growth (Division
27)........................................ 303.30 277.92 200.31 105.29 100.79
Scudder Growth and Income (Division 21)..... 263.43 160.93 119.07 84.75 72.43
Templeton Foreign (Division 32)............. 199.93 141.80 120.99 108.59 79.31
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio
(Division 22).............................. 163.45 134.50 130.09 93.45 109.89
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23)........................................ 153.92 127.82 126.47 86.41 109.09
Vanguard/Wellington (Division 25)........... 208.00 143.32 112.71 73.20 69.74
Vanguard/Windsor II (Division 24)........... 269.37 168.64 124.61 76.53 76.18
<CAPTION>
CUMULATIVE CHANGE IN PURCHASE UNIT VALUE FOR
EACH PERIOD END SINCE 09/30/87
------------------------------------------------------
FUND AND DIVISION** 1992 1991 1990 1989 1988
- ------------------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
AGSPC Growth (Division 15)*................. -- -- -- -- --
AGSPC International Government Bond
(Division 13)*............................. 20.43% -- -- -- --
AGSPC Money Market (Division 6)............. 33.62 29.57% 22.60% 14.19% 5.36%
AGSPC Science & Technology
(Division 17)*............................. -- -- -- -- --
AGSPC Social Awareness (Division 12)*....... 21.77 14.05 (9.75) -- --
AGSPC Stock Index (Division 10)............. 40.51 28.20 (0.18) 11.26 (13.92)
American Century -- Twentieth Century Ultra
(Division 31).............................. 90.80 89.71 3.83 19.15 (18.16)
Founders Growth (Division 30)............... 38.30 33.33 (0.09) 23.88 (17.23)
Neuberger&Berman Guardian Trust (Division
29)(1)..................................... 60.29 37.98 0.15 22.35 (2.98)
Putnam Global Growth (Division 28).......... 13.03 13.09 (6.90) 4.11 (18.34)
Putnam New Opportunities (Division 26)*..... 82.59 62.41 (8.35) -- --
Putnam OTC & Emerging Growth (Division
27)........................................ 37.31 27.64 (10.76) 16.68 (12.86)
Scudder Growth and Income (Division 21)..... 46.01 30.79 2.88 16.37 (11.64)
Templeton Foreign (Division 32)............. 50.14 44.83 25.35 22.67 (5.02)
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio
(Division 22).............................. 82.55 58.04 32.16 29.60 15.28
Vanguard Fixed Income Securities Fund --
Long-Term U.S. Treasury Portfolio (Division
23)........................................ 75.82 57.29 31.55 30.63 14.85
Vanguard/Wellington (Division 25)........... 49.91 35.65 8.66 19.70 (1.15)
Vanguard/Windsor II (Division 24)........... 51.53 33.21 1.18 24.74 (4.42)
</TABLE>
- ------------
* For the year in which a Division the underlying Fund commenced operations,
less than a full year's performance has been reflected, which is not
annualized.
** For the AGSPC Funds, the Table reflects actual historical performance of the
related Separate Account Divisions for the stated periods. For the other
Funds (Divisions 21-32) the Table reflects actual historical performance of
the related Separate Account Divisions since inception of each Division
(July 1, 1996) and hypothetical performance for periods prior to July 1,
1996. Hypothetical performance is based on the actual performance of the
underlying Fund reduced by Separate Account fees that would have been
incurred during the hypothetical period.
38
<PAGE> 146
OTHER CONTRACT FEATURES
- --------------------------------------------------------------------------------
CHANGES THAT MAY NOT BE MADE
The following terms in Portfolio Director 2 may not be changed once your account
has been established:
- The Contract Owner;
- The Participant; and
- The Annuitant.
CHANGE OF BENEFICIARY
The Beneficiary (if not irrevocable) may usually be changed at any time.
Under some retirement programs, the right to name or change a Beneficiary is
subject to approval by the spouse. Also, the right to name a Beneficiary other
than the spouse may be subject to certain tax laws and regulations.
If the Annuitant dies, and there is no Beneficiary, any death benefit will be
payable to the Annuitant's estate.
If a Beneficiary dies while receiving payments, and there is no co-Beneficiary
to continue to receive payments, any amount still due will be paid to the
Beneficiary's estate.
CONTINGENT OWNER
The Contract Owner may name a Contingent Owner under an individual non-tax
qualified Contract. During the Purchase Period, the Contingent Owner may be
changed. However, if the Contract Owner dies, benefits must be distributed as
required by the federal tax law.
CANCELLATION -- THE 20 DAY "FREE LOOK"
The Contract Owner may cancel an individual contract by returning it to the
Company within 20 days after delivery. (A longer period will be allowed if
required under state law.) A refund will be made to the Contract Owner within 7
days after receipt of the Contract within the required period. The amount of the
refund will be equal to all Purchase Payments received or the amount required
under state law, if larger.
WE RESERVE CERTAIN RIGHTS
We reserve the right to:
- Amend the Contract to conform with substitutions of investments;
- Amend the Contract to comply with tax or other laws;
- Make changes (upon written notice) to group Contracts that would apply only
to new Participants after the effective date of the changes;
- Operate VALIC Separate Account A as a management investment company under
the 1940 Act, in consideration of an investment management fee or in any
other form permitted by law;
- Deregister VALIC Separate Account A under the 1940 Act, if registration is
no longer required;
- Stop accepting new Participants under a group Contract.
RELATIONSHIP TO EMPLOYER'S PLAN
If the Contract is being offered as a retirement plan through your employer, you
should always refer to the terms and conditions in your employer's plan when
reviewing the description of Portfolio Director 2 in this prospectus.
Plan loans from the Fixed Account Options may be allowed by your employer's
plan. Refer to your plan for a description of charges and other information.
39
<PAGE> 147
VOTING RIGHTS
- --------------------------------------------------------------------------------
As discussed in the "About VALIC Separate Account A" section of this prospectus,
VALIC Separate Account A holds on your behalf shares of the Funds which comprise
the Variable Account Options. From time to time the Funds are required to hold a
shareholder meeting to obtain approval from their shareholders for certain
matters. As a Participant, you may be entitled to give voting instructions to us
as to how VALIC Separate Account A should vote its Fund shares on these matters.
Those persons entitled to give voting instructions will be determined before the
shareholders meeting is held. For more information about these shareholder
meetings and when they may be held, see the Funds' prospectuses.
WHO MAY GIVE VOTING INSTRUCTIONS
In most cases during the Purchase Period, you will have the right to give voting
instructions for the shareholder meetings. This will be true even if your
employer is the Contract Owner. Contract Owners will instruct VALIC Separate
Account A in accordance with these instructions. You will receive proxy material
and a form on which voting instructions may be given before the shareholder
meeting is held.
You will not have the right to give voting instructions if Portfolio Director 2
was issued in connection with a nonqualified and unfunded deferred compensation
plan.
DETERMINATION OF FUND SHARES
ATTRIBUTABLE TO YOUR ACCOUNT
DURING PURCHASE PERIOD
The number of Fund shares attributable to your account will be determined on the
basis of the Purchase Units credited to your account on the record date set for
the Fund shareholder meeting.
DURING PAYOUT PERIOD OR AFTER A DEATH
BENEFIT HAS BEEN PAID
The number of Fund shares attributable to your account will be based on the
liability for future variable annuity payments to your payees on the record date
set for the Fund shareholder meeting.
HOW FUND SHARES ARE VOTED
The Funds which comprise the Variable Account Options in Portfolio Director 2
may have a number of shareholders including VALIC Separate Account A, VALIC
other affiliated insurance company separate accounts and retirement plans within
the American General group of companies and public shareholders.
VALIC Separate Account A will vote all of the shares of the Funds it holds based
on, and in the same proportion as, the instructions given by all the
Participants invested in that Fund entitled to give instructions at that
shareholder meeting. VALIC Separate Account A will vote the shares of the Funds
it holds for which it receives no voting instruction in the same proportion as
the shares for which voting instructions have been received.
VALIC will vote the shares of the Funds it holds based on, and in the same
proportion as, the voting instructions received from participants in VALIC
Separate Account A.
In the future, we may decide how to vote the shares of VALIC or VALIC Separate
Account A in a different manner if permitted at that time under federal
securities law.
VALIC SEPARATE
ACCOUNT A -- a segregated
asset account established by
VALIC under the Texas
Insurance Code. The purpose
of VALIC Separate Account A
is to receive and invest your
Purchase Payments and
Account Value in the Variable
Account Options you have
selected.
40
<PAGE> 148
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
Portfolio Director 2 provides tax-deferred accumulation over time, but is
subject to federal income and excise taxes, mentioned briefly below. You should
refer to the Statement of Additional Information for further details. Section
references are to the Internal Revenue Code ("Code"). We do not attempt to
describe any potential estate or gift tax, or any applicable state, local or
foreign tax law other than possible premium taxes mentioned under "Premium Tax
Charge." Remember that future legislation could modify the rules discussed
below, and always consult your personal tax adviser regarding how the current
rules apply to your specific situation.
TYPE OF PLANS
Tax rules vary, depending on whether the Contract is offered under your
employer's tax-qualified retirement program or 408(b) IRA, or is instead a
nonqualified Contract. Portfolio Director 2 is used under the following types of
retirement arrangements:
- Section 403(b) annuities for employees
of public schools and
Section 501(c)(3) tax-exempt
organizations;
- Section 401(a) and 403(a) qualified plans of for-profit employers and other
employers (including self-employed individuals);
- Section 408(b) individual retirement annuities;
- Section 457 unfunded deferred compensation plans of governmental and
tax-exempt employers;
- Section 408(k) simplified deferred
compensation plans of private
employers.
The foregoing Contracts are "Qualified Contracts." Certain series of Portfolio
Director 2 may also be available through a nondeductible Section 408A "Roth"
individual retirement annuity.
Note that the specific terms of the governing employer plan may limit rights and
options otherwise available under a Contract.
In addition, Portfolio Director 2 is also available through "Non-Qualified
Contracts" to the extent acquired by "Non-Natural Persons." Such Non-Qualified
Contracts generally include unfunded, nonqualified deferred compensation plans
of corporate employers.
TAX CONSEQUENCES IN GENERAL
Purchase Payments, distributions, withdrawals, transfers and surrender of a
Contract can each have a tax effect, which varies with the governing retirement
arrangement. Please refer to the detailed explanation in the Statement of
Additional Information, the documents (if any) controlling the retirement
arrangement through which the contract is offered, and your personal tax
adviser.
Purchase Payments under Portfolio Director 2 can be made as contributions by
employers, or as pre-tax or after-tax contributions by employees, depending on
the type of retirement program. After-tax employee contributions constitute
"investment in the Contract." All Qualified Contracts receive deferral of tax on
the inside build-up of earnings on invested Purchase Payments, until a
distribution occurs. See the Statement of Additional Information for special
rules, including those applicable to taxable, non-natural owners of
Non-Qualified Contracts.
Distributions are taxed differently depending on the program through which
Portfolio Director 2 is offered and the previous tax characterization of the
contributions to which the distribution relates. Generally, the amount by which
a distribution exceeds investment in the Contract is subject to income tax. For
annuity payments, investment in the contract is recovered ratably over the
expected payout period. Special recovery rules might apply in certain
situations.
Amounts subject to income tax may also incur excise tax, under the circumstances
described in the Statement of Additional Information. Generally, they would also
be subject to some form of federal income tax withholding unless rolled into
another tax-deferred vehicle. Required withholding will vary according to type
of program, type of payment and your tax status. In addition, amounts received
under all Contracts may be subject to state income tax withholding requirements.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if purchase payments under the contract are invested in
publicly available mutual funds. In a ruling published in 1981, the Internal
Revenue Service ("IRS") had taken the position that, where purchase payments
under a variable annuity contract are invested in publicly available mutual
funds, the contract owner should be treated as the owner of the mutual fund
shares, and deferred tax treatment under the contract should not be available.
In the opinion of VALIC and its tax counsel, the 1981 ruling has been superseded
by subsequent legislation (Code
41
<PAGE> 149
- --------------------------------------------------------------------------------
Section 817(h)) which specifically exempts these Qualified Contracts, and the
IRS has no viable legal basis or reason to apply the theory of the 1981 ruling
to these Qualified Contracts under current law. In any event, were the IRS to
challenge the deferred tax treatment of these Qualified Contracts under the
theory of the 1981 ruling, VALIC and its tax counsel believe that Contract
owners would prevail.
It is also the opinion of VALIC and its tax counsel that for each other type of
Qualified Contract an independent exemption provides tax deferral regardless of
ownership of the Mutual Fund shares.
Generally, investment earnings on contributions to Non-Qualified Contracts will
be taxed currently to the owner and such contracts will not be treated as
annuities for federal income tax purposes.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The chart below compares the results from
Premium Payments made to:
- Portfolio Director 2 Contract issued to a tax favored retirement program
purchased with pre-tax premium payments;
- A non-qualified Contract purchased with after-tax Premium Payments and;
- Conventional savings vehicles such as savings accounts.
THE POWER OF TAX-DEFERRED GROWTH
[BAR GRAPH]
This hypothetical chart compares the results of (1) contributing $100 per month
to a conventional, non-tax deferred plan, (2) contributing $100 to a
nonqualified, tax-deferred annuity, and (3) contributing $100 per month ($138.89
since contributions are made before tax) to a qualified tax-deferred plan. The
chart assumes a 28% tax rate and an 8% fixed rate of return. The deduction of
fees and charges for both tax-deferred plans is reflected in the chart. Variable
options incur mortality and expense risk fee and administration and distribution
fee charges (0.60% - 0.85% during the purchase period and 1% - 1.25% during the
payout period) and may also incur account maintenance fees ($3.75 per quarter)
and surrender charges (5% of the lesser of all contributions received during the
last 60 months or the amount withdrawn). The dotted lines represent the amounts
remaining after withdrawal and payment of taxes and any surrender charge. An
additional 10% tax penalty may apply to withdrawals before age 59 1/2. This
information is for illustrative purposes only and is not a guarantee of future
return.
Unlike savings accounts, Premium Payments made to tax-favored retirement
programs and Non-Qualified Contracts generally provide tax deferred treatment on
earnings. In addition, Premium Payments made to tax-favored retirement programs
ordinarily are not subject to income tax until withdrawn. As shown above,
investing in a tax-favored program increases the accumulation power of savings
over time. The more taxes saved and reinvested in the program, the more the
accumulation power effectively grows over the years.
To further illustrate the advantages of tax deferred savings using a 28% Federal
tax bracket, an annual fixed yield (BEFORE THE DEDUCTION OF ANY FEES OR CHARGES)
of 8% under a tax-favored retirement program in which tax savings were
reinvested has an equivalent annual fixed yield of 5.76% under a conventional
savings program. THE 8% YIELD ON THE TAX-FAVORED PROGRAM WILL BE REDUCED BY THE
IMPACT OF INCOME TAXES UPON WITHDRAWAL. The yield will vary depending upon the
timing of withdrawals. The previous chart represents (without factoring in fees
and charges) after-tax amounts that would be received.
By taking into account the current deferral of taxes, contributions to
tax-favored retirement programs increase the amount available for savings by
decreasing the relative current out-of-pocket cost (referring to the effect on
annual net take-home pay) of the investment. The chart below illustrates this
principle by
42
<PAGE> 150
- --------------------------------------------------------------------------------
comparing a pre-tax contribution to a tax-favored retirement plan with an
after-tax contribution to a conventional savings account:
PAYCHECK COMPARISON
<TABLE>
<CAPTION>
TAX-FAVORED CONVENTIONAL
RETIREMENT SAVINGS
PROGRAM ACCOUNT
----------- ------------
<S> <C> <C>
Annual amount
available for
savings before
federal taxes...... $2,500 $2,500
Current federal
income tax due on
Purchase
Payments........... 0 (700)
Net retirement plan
Purchase
Payments........... $2,500 $1,800
</TABLE>
This chart assumes a 28% federal income tax rate. The $700 which is paid toward
current federal income taxes on $2,500 contributed to the conventional savings
account remains in the tax-qualified program, subject to being taxed upon
withdrawal. Stated otherwise, to reach an annual retirement savings goal of
$2,500, the contribution to a tax-qualified retirement program results in a
current out-of-pocket expense of $1,800 while the contribution to a conventional
savings account requires the full $2,500 out-of-pocket expense. The
tax-qualified retirement program represented in this chart is a plan type, such
as one under Section 403(b) of the Code, which allows participants to exclude
contributions within limits, from gross income.
43
<PAGE> 151
(This page intentionally left blank)
<PAGE> 152
REVOCATION OF TELEPHONE ASSET TRANSFER AUTHORITY
Participant/Contract Owner Name:
------------------------------------------------------------------------
Social Security Number:
------------------------------------------------------------------------
Birth Date:
I am the Participant under or Contract Owner of one or more variable annuity
contracts issued by The Variable Annuity Life Insurance Company ("VALIC"). I
hereby instruct VALIC not to accept any telephone instructions to transfer
Account Values among investment options or change the allocation of future
Purchase Payments from me, anyone representing me or anyone representing himself
or herself to be me. I understand as a result of executing this form that the
transfer of Account Values or Payout Values among investment options or changes
in the allocation of future Purchase Payments may only be effected upon the
receipt by VALIC of my written instructions.
<TABLE>
<S> <C>
- ------------------------------------------------------------ ---------------------------------------
Participant/Contract Owner Signature Date
Mail this form to any Regional Office (see the last page of your prospectus for addresses) or to the Home
Office at the following address: VALIC, Customer Service A3-01, 2929 Allen Parkway, Houston, TX 77019.
</TABLE>
47
<PAGE> 153
(This page intentionally left blank)
<PAGE> 154
Please tear off, complete and return the form below to one of our Regional
Offices at the address shown on the inside back cover of this Prospectus. A
Statement of Additional Information may also be ordered by calling
1-800-44-VALIC.
................................................................................
PORTFOLIO DIRECTOR CONTRACTS
Please send me a free copy of the Statement of Additional Information for The
Variable Annuity Life Insurance Company Separate Account A (Portfolio Director
2).
(Please Print or Type)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name: G.A. #
Address: Policy #
Social Security Number:
- -------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 155
(This page intentionally left blank)
<PAGE> 156
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information................................. 4
Marketing Information........................... 4
Endorsements and Published Ratings.............. 7
Types of Variable Annuity Contracts................. 8
Federal Tax Matters................................. 8
Tax Consequences of Purchase Payments........... 8
Tax Consequences of Distributions............... 9
Special Tax Consequences -- Early
Distribution.................................. 10
Special Tax Consequences -- Required
Distributions................................. 11
Tax Free Rollovers, Transfers and Exchanges..... 12
Exchange Privilege.................................. 12
Exchanges From Portfolio Director, Exchanges
From Portfolio Director 2..................... 12
Exchanges From Independence Plus Contracts...... 13
Exchanges From V-Plan Contracts................. 14
Exchanges From SA-1 and SA-2 Contracts.......... 15
Exchanges From Impact Contracts................. 16
Exchanges From Compounder Contracts............. 17
Information Which May Be Applicable To Any
Exchange...................................... 18
Calculation of Surrender Charge..................... 19
Illustration of Surrender Charge on Total Surrender.. 19
Illustration of Surrender Charge on a 10%
Partial Surrender Followed by a Full
Surrender..................................... 19
Purchase Unit Value................................. 20
Illustration of Calculation of Purchase Unit
Value......................................... 20
Illustration of Purchase of Purchase Units...... 20
Performance Calculations............................ 20
Money Market Division Yields.................... 20
Calculation of Yield for Money Market
Division Six.................................. 20
Illustration of Calculation of Yield for Money
Market Division Six........................... 20
Calculation of Effective Yield for Money Market
Division Six.................................. 21
Illustration of Calculation of Effective Yield
for Money Market Division Six................. 21
Standardized Yield for Bond Fund Divisions.......... 21
Calculation of Standardized Yield for Bond Fund
Divisions..................................... 21
Illustration of Calculation of Standardized
Yield for Bond Fund Divisions................. 21
Calculation of Average Annual Total Return...... 22
Performance Information............................. 23
Hypothetical $10,000 Account Value and
Cumulative Return as Compared
to Benchmark Tables........................... 23
Performance Compared to Market Indices.......... 23
AGSPC Growth Division Fifteen Performance
Compared to S&P 500 Index..................... 26
AGSPC International Government Bond Division
Thirteen Performance Compared to Salomon
Brothers Non-U.S. Dollar World Government Bond
Index......................................... 26
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AGSPC Money Market Division Six Performance
Compared to Certificate of Deposit Primary
Offering by New York City Banks, 30 Day
Index......................................... 27
AGSPC Science & Technology Division Seventeen
Performance Compared to S&P 500 Index......... 27
AGSPC Social Awareness Division Twelve
Performance Compared to S&P 500 Index......... 28
AGSPC Stock Index Division Ten Performance
Compared to S&P 500 Index..................... 28
American Century -- Twentieth Century Ultra
Division Thirty-one Compared to S&P 500 Index
and NASDAQ Composite Index.................... 29
Founders Growth Division Thirty Compared to S&P
500 Index..................................... 29
Neuberger&Berman Guardian Trust Division
Twenty-nine Compared to S&P 500 Index......... 30
Putnam Global Growth Division Twenty-eight
Compared to MCSI World Index and S&P 500
Index......................................... 30
Putnam New Opportunities Division Twenty-six
Compared to S&P 500 Index..................... 31
Putnam OTC & Emerging Growth Division
Twenty-seven Compared to Russell 2000 Index
and S&P 500 Index............................. 32
Scudder Growth and Income Division Twenty-one
Compared to S&P 500 Index..................... 32
Templeton Foreign Division Thirty-two Compared
to EAFE Index................................. 33
Vanguard Fixed Income Securities Fund -- Long-
Term Corporate Portfolio Division Twenty-two
Compared to Merrill Lynch Corporate Master
Index......................................... 33
Vanguard Fixed Income Securities Fund -- Long-
Term U.S. Treasury Portfolio Division Twenty-
three Compared to Lehman Brothers U.S.
Treasury Long-Term Index...................... 34
Vanguard/Wellington Division Twenty-five
Compared to S&P 500 Index and Merrill Lynch
Corporate Master Index........................ 34
Vanguard/Windsor II Division Twenty-four
Compared to S&P 500 Index..................... 35
Payout Payments..................................... 36
Assumed Investment Rate......................... 36
Amount of Payout Payments....................... 36
Payout Unit Value............................... 36
Illustration of Calculation of Payout Unit
Value......................................... 37
Illustration of Payout Payments................. 37
Distribution of Variable Annuity Contracts.......... 38
Experts............................................. 38
Comments on Financial Statements.................... 39
</TABLE>
51
<PAGE> 157
================================================================================
FOR ADDITIONAL INFORMATION ABOUT THE CONTRACTS
CONTACT YOUR NEAREST REGIONAL OFFICE:
3535 Grandview Parkway
Suite 200
Birmingham, AL 35243
(205) 967-8955
10851 N. Black Canyon Hwy
Suite 700
Phoenix, AZ 85029
(602) 678-1700
222 South Harbor Blvd.
10th Floor
Anaheim, CA 92805
(714) 774-7844
1900 O'Farrell St.
Suite 390
San Mateo, CA 94403
(650) 574-5433
165 South Union Blvd.
Suite 1050
Lakewood, CO 80228
(303) 988-3344
10006 N. Dale Mabry Hwy.
Suite 113
Tampa, FL 33618
(813) 961-1611
100 Ashford Center North
Suite 100
Atlanta, GA 30338
(770) 395-4700
230 West Monroe
Suite 1900
Chicago, IL 60606
(312) 368-1001
11711 N. Meridian St.
Suite 300
Carmel, IN 46032
(317) 574-7145
7310 Ritchie Highway
Suite 800
Glen Burnie, MD 21061
(410) 768-2330
1301 West Long Lake Road
Suite 340
Troy, MI 48098
(248) 641-0022
8500 Normandale Lake Blvd.
Suite 750
Bloomington, MN 55437
(612) 893-1099
4266 Interstate 55N
Suite 108
Jackson, MS 39211
(601) 981-5801
410 Amherst Street
Suite 250
Nashua, NH 03063
(603) 883-3840
90 Woodbridge Ctr. Dr.
Suite 300
Woodbridge, NJ 07095
(732) 750-5611
University Tower
3100 Tower Blvd.
Suite 1601, Box 50
Durham, NC 27707
(919) 489-6529
Two Summit Park Drive
Suite 410
Independence, OH 44131
(216) 520-2028
1800 S.W. First Avenue
Suite 505
Portland, OR 97201
(503) 223-6288
1767 Sentry Pkwy. West 19
Suite 300
Blue Bell, PA 19422
(215) 646-8030
Two International Plaza
Suite 601
Nashville, TN 37217
(615) 254-4822
5400 LBJ Freeway
Suite 1340
Dallas, TX 75240
(972) 490-1515
800 Gessner
Suite 1280
Houston, TX 77024
(713) 465-2253
There are also more than forty branch offices located throughout the country.
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
2929 ALLEN PARKWAY, HOUSTON, TEXAS 77019
1-800-44-VALIC
FOR UNIT VALUE INFORMATION CALL: 1-800-42-VALIC & TDD 1-800-24-VALIC
FOR ASSET TRANSFERS BY TELEPHONE CALL: 1-800-621-7792
TDD 1-800-35-VALIC
EASYACCESS 1-800-42-VALIC
TDD EASYACCESS 1-800-24-VALIC
================================================================================
<PAGE> 158
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
SEPARATE ACCOUNT A
UNITS OF INTEREST UNDER GROUP AND
INDIVIDUAL VARIABLE ANNUITY CONTRACTS
PORTFOLIO DIRECTOR 2
FOR SERIES 2.1 TO 2.12,
SERIES 2.1.20 TO 2.12.20
AND SERIES 2.1.40 TO 2.12.40
----------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------------------------
FORM N-4 PART B
JANUARY 1, 1998
This Statement of Additional Information is not a prospectus but contains
information in addition to that set forth in the prospectus for Portfolio
Director 2 dated January 1, 1998 ("Contracts") and should be read in conjunction
with the prospectus. The terms used in this Statement of Additional Information
have the same meaning as those set forth in the prospectus. A prospectus may be
obtained by calling or writing the Company, or The Variable Annuity Marketing
Company (the "Underwriter") at 2929 Allen Parkway, Houston, Texas 77019;
1-800-44-VALIC. Prospectuses are also available from regional sales offices of
the Underwriter or from its registered sales representatives.
(*Portfolio Director 2 is composed of Contract Forms UIT-194, UITG-194,
UITN-194, UIT-IRA-194, and UIT-SEP-194.)
1
<PAGE> 159
TABLE OF CONTENTS
<TABLE>
<S> <C>
General Information......................................... 4
Marketing Information..................................... 4
Endorsements and Published Ratings........................ 7
Types of Variable Annuity Contracts......................... 8
Federal Tax Matters......................................... 8
Tax Consequences of Purchase Payments..................... 8
Tax Consequences of Distributions......................... 10
Special Tax Consequences -- Early Distribution............ 10
Special Tax Consequences -- Required Distributions........ 11
Tax Free Rollovers, Transfers and Exchanges............... 12
Exchange Privilege.......................................... 12
Exchanges from Portfolio Director, Exchanges from
Portfolio Director 2................................... 12
Exchanges From Independence Plus Contracts................ 13
Exchanges From V-Plan Contracts........................... 14
Exchanges From SA-1 and SA-2 Contracts.................... 15
Exchanges From Impact Contracts........................... 16
Exchanges From Compounder Contracts....................... 17
Information Which May Be Applicable To Any Exchange....... 18
Calculation of Surrender Charge............................. 19
Illustration of Surrender Charge on Total Surrender....... 19
Illustration of Surrender Charge on a 10% Partial
Surrender Followed by a Full Surrender................. 19
Purchase Unit Value......................................... 20
Illustration of Calculation of Purchase Unit Value........ 20
Illustration of Purchase of Purchase Units................ 20
Performance Calculations.................................... 20
AGSPC Money Market Division Yields........................ 20
Calculation of Current Yield for AGSPC Money Market
Division Six........................................... 20
Illustration of Calculation of Current Yield for AGSPC
Money Market Division Six.............................. 20
Calculation of Effective Yield for AGSPC Money Market
Division Six........................................... 21
Illustration of Calculation of Effective Yield for AGSPC
Money Market Division Six.............................. 21
Standardized Yield for Bond Fund Divisions.................. 21
Calculation of Standardized Yield for Bond Fund
Divisions.............................................. 21
Illustration of Calculation of Standardized Yield for Bond
Fund Divisions......................................... 21
Calculation of Average Annual Total Return................ 22
Performance Information..................................... 23
Hypothetical $10,000 Account Value and Cumulative Return
as Compared to
Benchmark Tables....................................... 23
Performance Compared to Market Indices.................... 23
AGSPC Growth Division Fifteen Performance Compared to S&P
500 Index.............................................. 26
AGSPC International Government Bond Division Thirteen
Performance Compared to Salomon Brothers Non-U.S.
Dollar World Government Bond Index..................... 26
AGSPC Money Market Division Six Performance Compared to
Certificate of Deposit Primary Offering by New York
City Banks, 30 Day Index (Primary CD Index)............ 27
AGSPC Science & Technology Division Seventeen Performance
Compared to S&P 500 Index.............................. 27
AGSPC Social Awareness Division Twelve Performance
Compared to S&P 500 Index.............................. 28
AGSPC Stock Index Division Ten Performance Compared to S&P
500 Index.............................................. 28
American Century -- Twentieth Century Ultra Division
Thirty-One Performance Compared to S&P 500 Index and
NASDAQ Composite Index................................. 29
Founders Growth Division Thirty Performance Compared to
S&P 500 Index.......................................... 29
Neuberger&Berman Guardian Trust Division Twenty-Nine
Performance Compared to S&P 500 Index.................. 30
</TABLE>
2
<PAGE> 160
Putnam Global Growth Division Twenty-Eight Performance
Compared to MSCI World Index and S&P 500 Index......... 30
Putnam New Opportunities Division Twenty-Six Performance
Compared to S&P 500 Index.............................. 31
Putnam OTC & Emerging Growth Division Twenty-Seven
Performance Compared to Russell 2000 Index and S&P 500
Index.................................................. 32
Scudder Growth and Income Division Twenty-One Performance
Compared to S&P 500 Index.............................. 32
Templeton Foreign Division Thirty-Two Performance Compared
to EAFE Index.......................................... 33
Vanguard Fixed Income Securities Fund -- Long-Term
Corporate Portfolio Division Twenty-Two Performance
Compared to Merrill Lynch Corporate Master Index....... 33
Vanguard Fixed Income Securities Fund -- Long-Term U.S.
Treasury Portfolio Division Twenty-Three Performance
Compared to Lehman Brothers U.S. Treasury Long-Term
Index.................................................. 34
Vanguard/Wellington Division Twenty-Five Performance
Compared to S&P 500 Index and Merrill Lynch Corporate
Master Index........................................... 34
Vanguard/Windsor II Division Twenty-Four Performance
Compared to S&P 500 Index.............................. 35
Payout Payments............................................. 36
Assumed Investment Rate................................... 36
Amount of Payout Payments................................. 36
Payout Unit Value......................................... 36
Illustration of Calculation of Payout Unit Value.......... 37
Illustration of Payout Payments........................... 37
Distribution of Variable Annuity Contracts.................. 38
Experts..................................................... 38
Comments on Financial Statements............................ 39
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GENERAL INFORMATION
MARKETING INFORMATION
The Company has targeted not-for-profit organizations as the central focus
of its marketing efforts for its Contracts. The Company has utilized as its
general marketing theme the concept that the Company is "America's Retirement
Plan Specialists." Specifically, the Company's marketing thrust is aimed at
individuals and groups associated with public and private schools, colleges and
universities, not-for-profit health care organizations, state and local
governments and other not-for-profit organizations.
This marketing concept has proven to be successful. In the aggregate,
premium deposits to the Company have grown from $37,000 in 1956 to more than
$2.9 billion as of December 31, 1996. The number of aggregate participant
accounts has increased from 155,000 accounts in 1980 to more than 1,539,015
accounts as of December 31, 1996. The number of employer groups which have
purchased Contracts has increased by 178 percent in the past ten years to more
than 22,464 as of December 31, 1996. As of December 31, 1996, the Company was
ranked in the top 1 percent of all U.S. life insurance companies with regard to
asset size. As of December 31, 1996 the Company's assets totaled nearly $30
billion.
The Company's growth can also be reviewed by examining each market segment
the Company targets.
As of December 31, 1996, the Company was marketing Contracts in more than
8,282 public and private, primary and secondary schools with more than 427,224
participant accounts for employees in public and private schools nationwide.
From December 31, 1986 to December 31, 1996, the cash value of investments in
these Contracts has increased by 327 percent while the number of public and
private school groups in these Contracts increased 86 percent and the number of
participant accounts in these Contracts increased by 119 percent.
The Company has also increased its marketing efforts to colleges and
universities. From December 31, 1986 to December 31, 1996, the number of
colleges and universities which allow the Company to market Contracts to its
faculty and staff members has increased 144 percent and for the same period the
number of participant accounts has increased 147 percent. For the same time
period cash values for participants have increased 319 percent. As of December
31, 1996, more than 43 percent of United States colleges and universities allow
the Company to market Contracts to their faculty and staff members.
The Company has utilized as the central focus in its marketing to college
and university faculty and staff members the theme that the Company is the
"Alternative of Choice."
The Company has also had growth in the health care segment of the
not-for-profit organization market. From December 31, 1986 to December 31, 1996
Contract cash values have increased 792 percent. During the same period the
number of health care groups that have purchased these Contracts increased 241
percent and the number of participants who were in the Contracts increased 748
percent.
The Company has also experienced growth in contracts sold to state and
local governmental groups. From December 31, 1986 to December 31, 1996, Contract
cash values for participants in these groups have increased 319 percent. For the
same period the number of participant accounts for individuals in these groups
in these Contracts increased 250 percent and the number of employer groups has
increased 399 percent.
Additionally, several states have enacted, as an alternative to state
administered defined benefit retirement programs, Optional Retirement Plans
(ORPs). A state that sponsors an ORP will select the carriers which will be
allowed to participate in the ORP. The Company has been selected as one of the
carriers permitted to market Contracts to state employees who elect to
participate in the ORP in 26 of the last 28 states to sponsor ORPs with multiple
carriers, as of December 31, 1996. From December 31, 1990 to December 31, 1996,
in these ORPs the number of participant accounts increased 149 percent and cash
values increased 147 percent to more than $1.8 billion dollars. In addition,
during this time period annual ORP premiums doubled.
The Company may, from time to time, refer to a general investment strategy
known as indexing.
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Several of the Divisions employ this investment strategy. The Company may
compare the performance of these Divisions to the S&P 500 Index, S&P MidCap 400
Index, Russell 2000 Index, Morgan Stanley Capital International Europe,
Australia, and Far East (EAFE) Index, or any other appropriate market index. The
indexes are not managed funds and have no identifiable investment objectives.
The Company may, from time to time, refer, individually or collectively, to
its package of retirement plan services. Collectively, this package of services
may be referred to as easy Retirement Plan. Easy Retirement Plan includes: (1)
personal, face-to-face service from highly trained VALIC Retirement Plan
Specialists; (2) informative retirement-investment education programs, seminars
and materials; (3) specialized computer-aided services for retirement planning
and developing asset allocation strategies; (4) a wide selection of innovative,
market-responsive investment options; (5) advanced and efficient administration
of retirement accounts; and (6) a financially strong and stable Company with
which to do business.
From time to time the Company may refer to the diversifying process of
asset allocation based on the Modern Portfolio Theory developed by Nobel Prize
winning economist Harry Markowitz. The basic assumptions of Modern Portfolio
Theory are that the selection of individual investments has little impact on
portfolio performance, market timing strategies seldom work, markets are
efficient and selecting the suitable mix of asset classes is more important when
creating a long-term investment portfolio. Modern Portfolio Theory allows an
investor to determine an "efficient" or "optimized" portfolio that has
historically provided a higher return with the same risk or the same return with
lower risk.
When presenting the asset allocation process the Company may outline the
process of personal and investment risk analysis including determining
individual risk tolerances and a discussion of the different types of investment
risk. The Company may classify investors into five categories based on their
personal risk tolerance and will quote various industry experts on which types
of investments are best suited to each of the five risk categories. The industry
experts quoted may include Ibbotson Associates, CDA Investment Technologies,
Lipper Analytical Services, Laffer-Cantos, Inc., VARDS Report, Wilson Associates
and any other expert which has been deemed by the Company to be appropriate. The
Company may also provide a historical overview of the performance of a variety
of investment market indexes and different asset classes, such as stocks, bonds,
cash equivalents, etc. The Company may also discuss investment volatility
(standard deviation) including the range of returns for different asset classes
over different time horizons, and the correlation between the returns of
different asset classes. The Company may also discuss the basis of portfolio
optimization including the required inputs and the construction of efficient
portfolios using sophisticated computer-based techniques. Finally, the Company
may describe various investment strategies and methods of implementation such as
the use of index funds vs. actively managed funds, the use of dollar cost
averaging techniques, the tax status of contributions, and the periodic
rebalancing of diversified portfolios.
The Company, in its marketing efforts to each of the market segments, may
from time to time design sales literature and material specifically for that
market segment, e.g., the health care segment of the not-for-profit organization
market. This sales literature and material may also be specific to a certain
group. For example, sales literature and material may be designed for a specific
hospital. The sales literature and material would address specifically the
group's contract and retirement plan.
The Company, in its marketing efforts, may also refer to the following
investment advisers referenced in the Prospectus.
The Company may, from time-to-time, refer to American Century Investment
Management, Inc. (ACIM) as investment adviser to the American
Century -- Twentieth Century Ultra Fund (underlying Division Thirty-one). ACIM,
or its predecessor has been providing investment advisory services to American
Century since its founding in 1958.
The Company may, from time-to-time refer to Founders Asset Management, Inc.
(FAM) as investment adviser to Founders Growth Fund (underlying Division
Thirty). FAM is a registered investment adviser first established as an asset
manager in 1938.
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The Company may, from time to time, refer to Neuberger&Berman Management
Inc. (N&B Management) as investment manager to the Portfolio in which Guardian
Trust (underlying Division Twenty-nine) invests. N&B Management is the
administrator and distributor of shares of the Guardian Trust. N&B Management
and its predecessor firms have specialized in the management of no-load mutual
funds since 1950. N&B Management had aggregate net assets under management of
approximately $11.4 billion as of December 31, 1996.
The Company may, from time to time, refer to Putnam Investment Management
Inc. (PIM) as investment adviser to the Putnam New Opportunities Fund
(underlying Division Twenty-six), Putnam OTC Emerging Growth Fund (underlying
Division Twenty-seven) and Putnam Global Growth Fund (underlying Division
Twenty-eight). PIM has been managing mutual funds since 1937. As of September
30, 1997 PIM and its affiliates managed approximately $227 billion in assets.
The Company may, from time to time refer to Scudder Kemper Investments,
Inc. ("Scudder") as investment adviser to the Scudder Growth and Income Fund.
Scudder was established in 1919.
The Company may, from time to time, refer to Templeton Global Advisors
(TGA) Limited as investment adviser to the Templeton Foreign Fund (underlying
Division Thirty-two). TGA is an indirect wholly owned subsidiary of Franklin
Resources Inc. The Templeton organization has been investing globally over the
past 52 years and, with its affiliates, provides investment management and
advisory services to a worldwide client base, including over 4.3 million mutual
fund shareholders, foundations, endowments, employee benefit plans and
individuals.
The Company may, from time to time, refer to the Wellington Management
Company, LLP (WMC) as investment adviser to the Vanguard/Wellington Fund
(underlying Division Twenty-five) and the Vanguard Fixed Income Securities
Fund -- Long-Term Corporate Portfolio (underlying Division Twenty-two). WMC is a
professional investment counseling firm which globally provides investment
services to investment companies, institutions and individuals. As of December
31, 1995, WMC held discretionary management authority to more than $108 billion
of assets.
The Company may, from time to time, refer to Vanguard Fixed Income Group
(VFIG) as investment adviser to the Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury Portfolio (underlying Division Twenty-three).
VFIG provides investment advisory services to more than 39 Vanguard money market
and bond portfolios. Total assets under management by VFIG were $70 billion as
of December 31, 1995.
The Company may, from time to time, refer to Barrow, Hanley, Mewhinney &
Strauss, Inc., Equinox Capital Management, Inc., Tukman Capital Management, Inc.
and Vanguard Core Management Group. Each is an investment adviser to
Vanguard/Windsor II (underlying Division Twenty-four). Barrow, Hanley, Mewhinney
& Strauss, Inc. is a Texas corporation which manages a portion of the equity
allocation of the Vanguard/Windsor II. As of December 31, 1996 this portion was
approximately 72% of Vanguard/Windsor II's total assets.
Equinox Capital Management, Inc., a Delaware corporation, Tukman Capital
Management, Inc., a Maryland corporation, and Vanguard Core Management Group
manage the investment and reinvestment of a portion of the equity allocation of
Vanguard/ Windsor II. As of December 31, 1996, these investment advisers each
managed approximately 10% of Vanguard/Windsor II's total assets.
The Company may, from time to time, refer in advertisements or sales
materials to certain milestones which are intended to emphasize the Company's
growth and development in assets, groups and various market segments. The
Company may also refer to other versions of Portfolio Director 2 in
advertisements or sales material. The Company may refer to certain innovative
aspects of its products such as having a variety of publicly available mutual
funds as Variable Account Options. Additionally the Company may refer from time
to time in advertisements or sales materials to marketing strategies it utilizes
to promote the Company's business objectives. Further, the Company may refer
from time to time in advertisements or sales materials to certain value-added
services it provides to its groups, Contract Owners and Participants.
The Company may, from time to time, refer in its advertisements to Schwab
Personal Choice Retirement Accounts ("PCRA"). The PCRA is a
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self-directed brokerage account that may be used by VALIC Participants to
directly invest in publicly available mutual funds. PCRA is marketed through the
VALIC Investment Services Company.
The Company may from time to time compare the performance of the mutual
funds that serve as the investment vehicles for Portfolio Director 2 to the
performance of certain market indices. These market indices are described in the
"Performance Information" Section of this Statement of Additional Information.
ENDORSEMENTS AND
PUBLISHED RATINGS
From time to time, in advertisements or in reports to Contract Owners, the
Company may refer to its endorsements. Endorsements are often in the form of a
list of organizations, individuals or other parties which recommend the Company
or the Contracts. The endorser's name will be used only with the endorser's
consent. It should be noted that the list of endorsements may change from time
to time.
Also from time to time, the rating of the Company as an insurance company
by A. M. Best may be referred to in advertisements or in reports to Contract
Owners. Each year the A. M. Best Company reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect their current opinion of the relative financial strength and
operating performance of an insurance company in comparison to the norms of the
life/health insurance industry. Best's Ratings range from A++ to F. An A++
rating means, in the opinion of A. M. Best, that the insurer has demonstrated
the strongest ability to meet its respective policyholder and other contractual
obligations.
In addition, the claims-paying ability of the Company as measured by the
Standard and Poor's Ratings Group may be referred to in advertisements or in
reports to Contract Owners. A Standard and Poor's insurance claims-paying
ability rating is an assessment of an operating insurance company's financial
capacity to meet the obligations of its insurance policies in accordance with
their terms. Standard and Poor's ratings range from AAA to D.
Further, from time to time the Company may refer to Moody's Investor's
Service's rating of the Company. Moody's Investor's Service's financial strength
ratings indicate an insurance company's ability to discharge senior policyholder
obligations and claims and are based on an analysis of the insurance company and
its relationship to its parent, subsidiaries and affiliates. Moody's Investor's
Service's ratings range from Aaa to C.
The Company may additionally refer to its Duff & Phelp's rating. A Duff &
Phelp's rating is an assessment of a company's insurance claims paying ability.
Duff & Phelp's ratings range from AAA to CCC. An AAA rating reflects that a
company has the highest claims paying ability.
Ratings relate to the claims paying ability of the Company's General
Account and not the investment characteristics of the Separate Account.
The Company may from time to time, refer to Lipper Analytical Services
Incorporated ("Lipper"), Morningstar, Inc. ("Morningstar") and CDA/Wiesenberger
Investment Companies (CDA/Wiesenberger) when discussing the performance of its
Divisions. Lipper, Morningstar and CDA/Wiesenberger are leading publishers of
statistical data about the investment company industry in the United States.
Additionally, the Company may compare the performance of the Divisions to
categories published by Lipper and Morningstar. Morningstar has not, however,
ranked the Neuberger&Berman Guardian Trust. The published categories which may
be utilized in comparison with the performance of the Divisions include the
Morningstar Growth and Income Mutual Fund Category, Morningstar Aggressive
Growth Mutual Fund Category, Morningstar Growth Mutual Fund Category,
Morningstar International Stock Mutual Fund Category, Lipper Growth and Income
Mutual Fund Category, Lipper Small Company Growth Mutual Fund Category, Lipper
Growth Mutual Fund Category and Lipper International Mutual Fund Category.
Additional Lipper or Morningstar categories may be utilized if they are deemed
by the Company relevant to the performance of the Company's Divisions.
The Company may, from time to time, refer to The Variable Annuity Research
& Data Services (VARDS) Report. The VARDS Report offers
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monthly analysis of the variable annuity industry, including marketing and
performance information.
Finally the Company will utilize as a comparative measure for the
performance of its Funds the Consumer Price Index ("CPI"). The CPI is a measure
of change in consumer prices, as determined in a monthly survey of the U.S.
Bureau of Labor Statistics. Housing costs, transportation, food, electricity,
changes in taxes and labor costs are among the CPI components. The CPI provides
a tool for determining the impact of inflation on an individual's purchasing
power.
TYPES OF VARIABLE ANNUITY
CONTRACTS
Three types of Contracts are offered in connection with the prospectus to
which this Statement of Additional Information relates:
(1) single payment immediate annuity Contracts;
(2) single payment deferred annuity Contracts; and
(3) flexible payment deferred annuity Contracts.
Under single payment Contracts, only one Purchase Payment is made by the
Contract Owner. Under flexible payment Contracts, Purchase Payments generally
are made until retirement age is reached. However, no Purchase Payments are
required to be made after the first payment. Purchase Payments are subject to
any minimum payment requirements under the Contract.
Under deferred annuity contracts, Purchase Payments are invested and
accumulate on a fixed or variable basis until the date the Contract Owner
selects to commence annuity payments.
Under immediate annuity Contracts, the first annuity payment is made on the
first day of the second month after the Purchase Payment is received. During the
period before the Annuity Date, the Purchase Payments are invested in the same
manner, and the other terms and conditions (including the options and rights of
Contract Owners, Annuitants and Beneficiaries) are the same under immediate
annuity Contracts as under deferred annuity Contracts.
The Contracts are non-participating and will not share in any of the
profits of the Company.
FEDERAL TAX MATTERS
This Section summarizes the major tax consequences of contributions,
payments, and withdrawals under Portfolio Director 2, during life and at death.
It is the opinion of VALIC and its tax counsel that a Qualified Contract
described in Section 403(a), 403(b), or 408(b) of the Code does not lose its
deferred tax treatment if Purchase Payments under the contract are invested in
publicly available mutual funds. If investment in publicly available mutual
funds were to cause the tax deferral provisions described below for these
specific types of contracts not to apply, you would be currently taxed on
transfers, redemptions, purchase payments and dividend and capital gains
distributions.
In addition, it is also the opinion of VALIC and its tax counsel that, for
each other type of Qualified Contract, an independent exemption provides tax
deferral regardless of ownership of the Mutual Fund shares.
Investment earnings on contributions to Non-Qualified Contracts generally
will be taxed currently to the owner, and the contracts will not be treated as
annuities for federal income tax purposes. For this reason, Non-Qualified
Contracts will be offered and sold only to non-natural persons pursuant to the
meaning of Section 72 of the Code.
TAX CONSEQUENCES OF PURCHASE PAYMENTS
403(b) Annuities. Purchase Payments made by Section 501(c)(3) tax-exempt
organizations and public educational institutions toward Contracts for their
employees are excludable from the gross income of employees, to the extent
aggregate Purchase Payments do not exceed several competing tax limitations.
This gross income exclusion applies both to employer contributions and to your
voluntary salary reduction contributions.
Your voluntary salary reduction contributions are generally limited to the
lesser of $9,500 ($10,000 after 1997) or 20% of salary, although additional,
"catch-up" contributions are permitted under certain circumstances. Combined
employer and salary reduction contributions are generally limited to
approximately 20% of salary. In addition, after 1988 employer contributions for
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highly compensated employees may be further limited by applicable
nondiscrimination rules.
401(a) and 403(a) Qualified Plans. Purchase Payments made by an employer
(or a self-employed individual) under a qualified pension, profit-sharing or
annuity plan are excluded from the gross income of the employee. Purchase
Payments made by an employee generally are made on an after-tax basis, unless
eligible for pre-tax treatment by reason of Sections 401(k) or 414(h).
408(b) Individual Retirement Annuities ("408(b) IRAs"). Annual
tax-deductible contributions for 408(b) IRA Contracts are limited to the lesser
of $2,000 or 100% of compensation, and generally may be made only by individuals
who:
(i) are not active participants in another retirement plan;
(ii) are active participants in another retirement plan, but are unmarried and
have adjusted gross income of $25,000 or less ($30,000 or less beginning
in 1998; adjusted upward for inflation thereafter); or
(iii) are active participants in another retirement plan, but are married and
have adjusted gross income of $40,000 or less ($50,000 or less beginning
in 1998; adjusted upward for inflation thereafter).
Active participants in other retirement plans whose adjusted gross income
exceeds the limits in (ii) or (iii) by less than $10,000 are entitled to make
deductible 408(b) IRA contributions in proportionately reduced amounts. If a
408(b) IRA is established for a nonworking spouse who has no compensation, the
annual tax-deductible Purchase Payments for both spouses' Contracts cannot
exceed the lesser of $4,000 or 100% of the working spouse's earned income, and
no more than $2,000 may be contributed to either spouse's IRA for any year.
You may be eligible to make nondeductible IRA contributions in excess of:
(i) the lesser of $2,000 ($4,000 for you and your spouse's IRA) or 100% of
compensation, over
(ii) your applicable IRA deduction limit.
You may also make unlimited contributions of eligible rollover amounts from
other qualified plans. See Tax-Free Rollovers, Transfers and Exchanges.
408A "Roth" Individual Retirement Annuities ("408A "Roth" IRAs"). After
1997, annual nondeductible contributions for 408A "Roth" IRA Contracts are
limited to the lesser of $2,000 or 100% of compensation, and may be made only by
individuals who:
(i) are unmarried and have adjusted gross income of $95,000 or less; or
(ii) are married and have adjusted gross income of $150,000 or less.
The available nondeductible 408A "Roth" IRA contribution is reduced
proportionately to zero where adjusted gross income exceeds the limits in (i) or
(ii) by $10,000 or less.
All contributions to 408(b) IRAs, traditional nondeductible IRAs and 408A
"Roth" IRAs must be aggregated for purposes of the $2,000 annual contribution
limit.
457 Plans. A unit of a state or local government may establish a deferred
compensation program for individuals who perform services for the government
unit. In addition, a non-governmental tax-exempt employer may establish an
eligible deferred compensation program for individuals who: (i) perform services
for the employer, and (ii) belong to a select group of management or highly
compensated employees and/or independent contractors.
This type of program allows eligible individuals to defer the receipt of
compensation (and taxes thereon) otherwise presently payable to them. If the
program is an eligible deferred compensation plan (an "EDCP"), you may
contribute (and defer tax on) the lesser of $7,500 (indexed for inflation) or
33 1/3% of your "includible" compensation (compensation from the employer
currently includible in taxable income). Additional, catch-up deferrals are
permitted in your final three years before normal retirement age.
The employer uses deferred amounts to purchase the Contracts offered by
this prospectus. The Contract is generally held for the exclusive benefit of
plan participants, although certain Contracts may remain subject to the claims
of the employer's general creditors until 1999. The em-
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ployee has no present rights to vested interest in the Contract and is entitled
to payment only in accordance with the EDCP provisions.
SEP. Employer contributions under a SEP are made to a separate individual
retirement account established for each participating employee, and generally
must be made at a rate representing a uniform percent of participating
employees' compensation. Employer contributions are excludable from employees'
taxable income, and after 1993 cannot exceed the lesser of $30,000 or 15% of
your compensation.
Through 1996, employees of certain small employers (other than tax-exempt
organizations) may contribute pretax, on a salary reduction basis, to the SEP.
These salary reduction contributions may not exceed $7,000, indexed for
inflation in later years.
Non-Qualified Contracts. Non-natural persons may purchase a Non-Qualified
Contract. However, any increase in the Purchase Unit Value of a Non-Qualified
Contract resulting from the investment performance of VALIC Separate Account A
is taxable to the Contract Owner when credited to it.
TAX CONSEQUENCES OF DISTRIBUTIONS
403(b) Annuities. Voluntary salary reduction amounts accumulated after
December 31, 1988, and earnings on voluntary contributions before and after that
date, may not be distributed before one of the following:
(1) attainment of age 59 1/2;
(2) separation from service;
(3) death;
(4) disability, or
(5) hardship (hardship distributions are limited to salary reduction
contributions only, exclusive of earnings thereon).
Distributions are taxed as ordinary income to the recipient in accordance
with Section 72.
401(a) and 403(a) Qualified Plans. Distributions from Contracts purchased
under qualified plans are taxable as ordinary income, except to the extent
allocable to an employee's after-tax contributions (investment in the Contract).
If you or your Beneficiary receive a "lump sum distribution" (legally defined
term), the taxable portion may be subject to special 5-year or 10-year income
averaging treatment. Five-year forward averaging is unavailable for
distributions occurring after December 31, 1999. Ten-year income averaging uses
tax rates in effect for 1986, allows 20% capital gains treatment for the taxable
portion of a lump sum distribution attributable to years of service before 1974,
and is available if you were 50 or older on January 1, 1986.
408(b) IRAs and SEPs. Distributions are taxed as ordinary income to the
recipient.
408A "Roth" IRAs. "Qualified" distributions upon attainment of age 59 1/2,
upon death, disability or for first-time homebuyer expenses are tax-free as long
as five or more years have passed since the first contribution to taxpayer's
first 408A "Roth" IRA. Other distributions are taxable to the extent of
accumulated earnings.
457 Plans. Amounts received from an EDCP are includible in gross income for
the taxable year in which are paid or otherwise made available to the recipient.
Non-Qualified Contracts. The investment performance of the VALIC Separate
Account A is taxable when credited to the contract owner whether or not
distributed.
SPECIAL TAX CONSEQUENCES -- EARLY
DISTRIBUTION
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs and
SEPs. Taxable distributions received before the recipient attains age 59 1/2
generally are subject to a 10% penalty tax in addition to regular income tax.
Distributions on account of the following generally are excepted from this
penalty tax:
(1) death;
(2) disability;
(3) separation from service after a participant reaches age 55;
(4) separation from service at any age if the distribution is in the form of
substantially equal periodic payments over the life (or life expectancy) of
the Participant (or the Participant and Beneficiary), and
(5) distributions which do not exceed the employee's tax deductible medical
expenses for the taxable year of receipt.
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After 1997, distributions from 408(b) IRAs on account of the following
additional reasons are also excepted from this penalty tax:
(6) distributions up to $10,000 to cover costs of acquiring, constructing or
reconstructing the residence of a first-time homebuyer, and
(7) distributions to cover certain costs of higher education tuition, fees,
books, supplies and equipment for the IRA owner, a spouse, child or
grandchild.
408A "Roth" IRAs. Distributions, other than "qualified" distributions where
the five-year holding rule is met, are generally subject to the 10% penalty tax.
457 Plans. Distributions generally may be made under an EDCP prior to
separation from service only for unforeseeable emergencies, or for amounts under
$3,500 for inactive Participants, and are includible in the recipient's gross
income in the year paid.
Non-Qualified Contracts. No penalties apply for early distributions under
Non-Qualified Contracts sold to non-natural persons.
SPECIAL TAX CONSEQUENCES -- REQUIRED DISTRIBUTIONS
403(b) Annuities. Generally, minimum required distributions must commence
no later than April 1 of the calendar year following the later of the calendar
year in which the Participant attains age 70 1/2 or the calendar year in which
the Participant retires. Required distributions must be made over a period that
does not exceed the life or life expectancies of the Participant (or lives or
joint life expectancies of the Participant and Beneficiary). The minimum amount
payable can be determined several different ways. A penalty tax of 50% is
imposed on the amount by which the minimum required distribution in any year
exceeds the amount actually distributed in that year.
Amounts accumulated under a Contract on December 31, 1986 may be paid in a
manner that meets the above rule or, alternatively:
(i) must begin to be paid when Participant attains age 75; and
(ii) the present value of payments expected to be made over the life of the
Participant, (under the option chosen) must exceed 50% of the present value
of all payments expected to be made (the "50% rule").
The 50% rule will not apply if a Participant's spouse is the joint annuitant.
Notwithstanding these pre-January 1, 1987 rules the entire contract balance must
meet the minimum distribution incidental benefit requirement of Section
403(b)(10).
At the Participant's death before payout has begun, Contract amounts
generally either must be paid to the Beneficiary within 5 years, or must begin
within 1 year of death and be paid over the life or life expectancy of the
Beneficiary. If death occurs after commencement of (but before full) payout,
distributions generally must continue at least as rapidly as under the method
elected by the Participant and in effect at the time of death.
401(a) and 403(a) Qualified Plans. Minimum distribution requirements for
Qualified Plans, are generally the same as described for 403(b) Annuities,
except that there is no exception for pre-1987 amounts.
408(b) IRAs and SEPs. Minimum distribution requirements are generally the
same as described above for 403(b) Annuities, except that:
(1) there is no exception for pre-1987 amounts; and
(2) there is no available postponement, past April 1 of the calendar year
following the calendar year in which age 70 1/2 is attained.
408A "Roth" IRAs. Minimum distribution requirements generally applicable to
403(b) Annuities, 401(a) and 403(a) Qualified Plans, 408(b) IRAs, SEPs and 457
Plans do not apply to 408A "Roth" IRAs during the owner's lifetime, but
generally do apply at the owner's death.
457 Plans. Beginning January 1, 1989, the minimum distribution requirements
for EDCP's are generally the same as described above for 403(b) Annuities except
that there is no exception for pre-1987 amounts.
Non-Qualified Contracts. Non-Qualified Contracts do not require
commencement of distributions at any particular time and do not limit the
duration of annuity payments.
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TAX-FREE ROLLOVERS, TRANSFERS AND
EXCHANGES
403(b) Annuities. Tax free transfers between 403(b) annuity contracts
and/or 403(b)(7) custodial accounts, and tax-free rollovers from 403(b) programs
to 408(b) IRAs or other 403(b) programs, are permitted under certain
circumstances.
401(a) and 403(a) Qualified Plans. The taxable portion of certain
distributions may be transferred in a tax-free rollover to a 408(b) individual
retirement account or annuity, or to another such plan.
408(b) IRAs. Funds may be transferred tax-free to a 408(b) IRA Contract,
from a 403(b) Annuity, or 401(a) or 403(a) Qualified Plan, under certain
conditions. These amounts may subsequently be rolled over on a tax-free basis to
another such plan or 403(b) Annuity Contract from this "conduit" IRA. In
addition, tax-free rollovers may be made from one 408(b) IRA to another provided
that no more than one such rollover is made during any twelve-month period.
408A "Roth" IRAs. Funds may be rolled over tax-free from one 408A "Roth"
IRA to another. Funds in a 408(b) IRA may be rolled in a taxable transaction to
a 408A "Roth" IRA by individuals who:
(i) have adjusted gross income of $100,000 or less, whether single or married
filing jointly;
(ii) are not married filing separately.
Special, complicated rules governing holding periods, escape from the 10%
penalty tax and ratable recognition of 1998 income also apply to rollovers from
408(b) IRAs to 408A "Roth" IRAs, and may be subject to further modification by
Congress. You should consult your tax advisor regarding the application of these
rules.
SEPs. Funds may be rolled over tax free from one SEP only to another SEP or
a 408(b) IRA.
457 Plans. Tax-free transfer of EDCP amounts are permitted only to another
EDCP.
EXCHANGE PRIVILEGE
In the prospectus we described generally how under certain conditions we
will allow you to exchange from other fixed and/or variable contracts we issue
(other contracts) to Portfolio Director 2. These other contracts are listed in
the prospectus. A more detailed comparison of the features, charges and
restrictions between each of these listed other contracts and Portfolio Director
2 provided below.
In the prospectus we also describe exchanges between Portfolio Director and
Portfolio Director 2, as well as among series of Portfolio Director 2, and the
restrictions imposed on those exchanges. Specifically once you have exchanged
between Portfolio Director and Portfolio 2 or among series of Portfolio Director
2 you must wait 120 days before making another exchange between Portfolio
Director and Portfolio Director 2.
EXCHANGES FROM PORTFOLIO DIRECTOR,
EXCHANGES FROM PORTFOLIO DIRECTOR 2
Sales/Surrender Charges.
Portfolio Director and Portfolio Director 2 have the same provisions for
imposing surrender charges upon total or partial surrenders. Both Portfolio
Director and Portfolio Director 2 have the same provisions where surrender
charges are not imposed. For purposes of satisfying the fifteen-year and
five-year holding requirements described in "Surrender Charge" in the
prospectus, Portfolio Director 2 will be deemed to have been issued on the same
date as Portfolio Director. Purchase Payments exchanged into Portfolio Director
2 will be treated as Purchase Payments under Portfolio Director 2 for purposes
of calculating the surrender charge. Exchanged payments will be deemed to have
been made under Portfolio Director 2 on the date they were made to Portfolio
Director for purposes of calculating the surrender charge under Portfolio
Director 2.
Other Charges
Portfolio Director and Portfolio Director 2 have the same provisions for
imposing the quarterly account maintenance fee.
Both Portfolio Director and Portfolio Director 2 impose an additional daily
charge with an annualized rate of 1.00% to 1.25% (or lower amounts during the
Purchase Period for different series of Portfolio Director 2), depending upon
the Variable Account Option selected, if any, on the daily net asset value of
VALIC Separate Account A. This charge is to cover expenses not covered by the
account maintenance fee and to compensate the Company for assuming mortality
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<PAGE> 170
and expense risks and administration expenses. Under Portfolio Director 2 the
Company will reimburse to certain Divisions any fees it receives from a Mutual
Fund for providing the Mutual Fund administrative and shareholder services.
Investment Options
Under Portfolio Director, sixteen divisions of VALIC Separate Account A are
available, thirteen of which invest in different investment portfolios of AGSPC
and three divisions of which invest in other mutual fund portfolios. These
mutual fund portfolios are managed either by the Company, the Dreyfus
Corporation or Templeton Investment Counsel Inc. for advisory fees at annual
rates ranging from .28% to .90% of each portfolio's or mutual fund's average
daily net assets. Two fixed investment options are also available.
Under Portfolio Director 2, eighteen divisions of VALIC Separate Account A
are available, 6 of which invest in a different portfolio of AGSPC and 12
divisions of which invest in other publicly available mutual fund portfolios.
These mutual fund portfolios are managed either by the Company or other
investment managers for advisory fees ranging from 0.01% to 1.00% of each
portfolio's or mutual fund's average daily net assets. Two fixed investment
options are also available.
Annuity Options
Both Portfolio Director and Portfolio Director 2 provide the same annuity
options.
EXCHANGES FROM INDEPENDENCE PLUS
CONTRACTS
Sales/Surrender Charges. Under an Independence Plus Contract, no sales
charge is deducted at the time a Purchase Payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any Purchase Payments withdrawn within five years of the date
such Purchase Payments were made. The most recent Purchase Payments are deemed
to be withdrawn first. Up to 10% of the Account Value may be surrendered in a
Participant Year without any surrender charge being imposed. Portfolio Director
2 imposes a similar surrender charge upon total or partial surrenders. Both the
Portfolio Director 2 and Independence Plus Contracts have other similar
provisions where surrender charges are not imposed. However, Portfolio Director
2 provides at least one additional provision, not included in Independence Plus
Contracts, under which no surrender charge will be imposed. An additional
provision allows election of a systematic withdrawal method without surrender
charges. (See "Surrender Charge" in the prospectus.) For purposes of satisfying
the fifteen-year and five-year holding requirements described under "Surrender
Charge" in the prospectus, Portfolio Director 2 will be deemed to have been
issued on the same date as the Independence Plus Contract or certificate
thereunder, but no earlier than January 1, 1982. Purchase Payments exchanged
into Portfolio Director 2 and which were made within five years before the date
of exchange will be treated as Purchase Payments under Portfolio Director 2 for
purposes of calculating the surrender charge. Exchanged payments will be deemed
to have been made under Portfolio Director 2 on the date they were made to
Independence Plus Contracts for purposes of calculating the surrender charge
under Portfolio Director 2.
Other Charges. Under the Independence Plus Contracts, a maintenance charge
of $20 is assessed for the first year and an annual charge of $15 is assessed
for the second and later years during the accumulation period. The charge is due
in quarterly installments. A daily fee is charged at the annual rate of 1% of
the daily net asset value allocable to the Variable Subaccounts to cover
administrative expenses (other than those covered by the annual charge) and
mortality risks assumed by the Company. For Portfolio Director 2, a quarterly
account maintenance fee of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account Value is
credited to a Participant's Account. The fee is to reimburse the Company for
some of the administrative expenses associated with the Variable Account
Options. No fee is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such fee
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director 2. The fee may also be reduced or waived by the
Company for Portfolio Director 2 if the administrative expenses are expected to
be lower for that Contract. (See "Reduction or Waiver of Account Maintenance
Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges"
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<PAGE> 171
in the prospectus). To cover expenses not covered by the account maintenance fee
and to compensate the Company for assuming mortality risks and administration
and distribution expenses under Portfolio Director 2, an additional daily charge
with an annualized rate of 1.00% to 1.25% (or lower amounts during the Purchase
Period for different series of Portfolio Director 2), depending upon the
Variable Account Options selected, if any, on the daily net asset value of VALIC
Separate Account A is attributable to Portfolio Director 2. (See "Separate
Account Charges" and "Separate Account Expense Reimbursement" in the
prospectus.)
Investment Options. Under Independence Plus Contracts ten divisions of
VALIC Separate Account A are available variable investment alternatives, each
investing in shares of a different underlying fund of AGSPC portfolio. The ten
mutual funds are managed by the Company for advisory fees at annual rates
ranging from .28% to .50% of each respective portfolio's average daily net
assets. In addition, two fixed investment options are available. Under Portfolio
Director 2, eighteen divisions of VALIC Separate Account A are available, six of
which invest in a different investment portfolio of AGSPC and twelve divisions
of which invest in other publicly available mutual fund portfolios. These mutual
fund portfolios are managed either by the Company, or other investment advisers
for advisory fees at annual rates ranging from .01% to 1.00% of each portfolio's
or mutual fund's average daily net assets. Two fixed investment options are also
available.
Annuity Options. Annuity options under Independence Plus Contracts provide
for payments on a fixed or variable basis, or a combination of both. The
Independence Plus Contract permits annuity payments for a designated period
between 3 and 30 years on a fixed basis only. Portfolio Director 2 permits
annuity payments for a designated period between of 5 and 30 years on a fixed
basis only. Independence Plus Contracts and Portfolio Director 2 both provide
for "betterment of rates." Under this provision, annuity payments for fixed
annuities will be based on mortality tables then being used by the Company, if
more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM V-PLAN CONTRACTS
Sales/Surrender Charges. Under a V-Plan Contract, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 7% of
the Purchase Payments withdrawn within five years of the date such Purchase
Payments were made. The most recent Purchase Payments are deemed to be withdrawn
first. Up to 10% of the account value may be surrendered in a Participant Year
without any surrender charge being imposed. Portfolio Director 2 also imposes a
surrender charge upon total or partial surrenders. However, the surrender charge
under Portfolio Director 2 may not exceed 5% of any Purchase Payments withdrawn
within the most recent five years prior to the receipt of the surrender request
by the Company at its Home Office. V-Plan Contracts have other provisions where
surrender charges are not imposed. However, Portfolio Director 2 provides at
least two additional provisions, not included in V-Plan Contracts, under which
no surrender charge will be imposed. Those Portfolio Director 2 provisions
include no surrender charge on an election of the no charge systematic
withdrawal method, and where an employee-participant has maintained the account
for a period of five years and has attained the age 59 1/2. (See "Surrender
Charge" in the prospectus.) For purposes of satisfying the fifteen-year and
five-year holding requirements, Portfolio Director 2 will be deemed to have been
issued on the same date as the V-Plan Contract or certificate thereunder, but no
earlier than January 1, 1982.
If there is a total or partial surrender, Purchase Payments exchanged into
Portfolio Directors 2 and which were made within five years before the date of
exchange will be treated as Purchase Payments under Portfolio Director 2 for
purposes of calculating the surrender charge. Exchanged payments will be deemed
to have been made under Portfolio Director 2 on the date they were made to the
V-Plan Contract for purposes of calculating the surrender charge under Portfolio
Director 2.
Other Charges. There are no administrative and risk charges under V-Plan
Contracts. For Portfolio Director 2, a quarterly account maintenance fee of
$3.75 is assessed for each calendar quarter during the Purchase Period during
which
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<PAGE> 172
any Variable Account Option Account Value is credited to a Participant's
Account. The fee is to reimburse the Company for some of the administrative
expenses associated with the Variable Account Options. No fee is assessed for
any calendar quarter if the Account Value is credited only to the Fixed Account
Options throughout the quarter. Such fees begin immediately if an exchange is
made into any Variable Account Option offered under Portfolio Director 2. The
fee may also be reduced or waived by the Company on Portfolio Director 2 if the
administrative expenses are expected to be lower for that Contract. (See
"Reduction or Waiver of Account Maintenance Fee, Surrender, Mortality and
Expense Risk Fee or Administration and Distribution Fee Charges" in the
prospectus.) To cover expenses not covered by the account maintenance fee and to
compensate the Company for assuming mortality risks and administration and
distribution expenses under Portfolio Director 2, an additional daily charge
with an annualized rate of 1.00% to 1.25% (or lower amounts during the Purchase
Period for different series of Portfolio Director 2), depending upon the
Variable Account Options selected, if any, on the daily net asset value of the
VALIC Separate Account A is attributable to Portfolio Director 2. (See "Separate
Account Charges" and "Separate Account Expense Reimbursement" in the
prospectus.)
Investment Options. There are no variable investment alternatives provided
under V-Plan Contracts.
Annuity Options. Annuity options under V-Plan Contracts provide for
payments on a fixed basis only. The V-Plan Contract permits annuity payments for
a designated period of 1 to 15 years. Under a V-Plan Contract, the designated
period option may, subject to adverse tax consequences, be commuted at any time
for its remaining value. Portfolio Director 2 permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Under
Portfolio Director 2, Payout Payments may be made on a fixed or variable basis,
or a combination of both. Portfolio Director 2 does not provide for commutation.
V-Plan Contracts and Portfolio Directors 2 both provide for "betterment of
rates." Under this provision, Payout Payments for fixed annuities will be based
on mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract.
EXCHANGES FROM SA-1 AND SA-2 CONTRACTS (GUP-64, GUP-74, GTS VA CONTRACTS)
Sales/Surrender Charges. Under the SA-1 and SA-2 Contracts a sales and
administrative charge is deducted from each Purchase Payment. This charge ranges
from 5% of the first $5,000 of Purchase Payments to 3% of Purchase Payments in
excess of $15,000. If a SA-1 or SA-2 Contract is exchanged for Portfolio
Director 2 the surrender charge under Portfolio Director 2 will not apply to the
amount of Account Value applied to Portfolio Director 2 ("Exchanged Amount").
Purchase Payments made to Portfolio Director 2, however, would be subject to a
surrender charge. In the case of a partial surrender, all Purchase Payments to
Portfolio Director 2 will be deemed to be withdrawn before any Exchanged Amount
is deemed to be withdrawn. No exchange pursuant to this offer will be allowed
within 120 days of a transfer of fixed accumulations under a SA-1 or SA-2
Contract to the variable portion of such Contract. Under Portfolio Director 2,
no sales charge is deducted at the time a Purchase Payment is made, but a
surrender charge may be imposed on partial or total surrenders. The surrender
charge may not exceed 5% of any Purchase Payments withdrawn within the most
recent five years prior to the receipt of the surrender request by the Company
at its Home Office. For purposes of this surrender charge, the most recent
Purchase Payments are deemed to be withdrawn first. (See "Surrender Charge" in
the prospectus.)
Other Charges. A charge of a percentage of each Purchase Payment is made
for administrative expenses for SA-1 and SA-2 Contracts. The charge is generally
1.25% and is included in the above sales and administrative charge. An
additional daily charge (at an annual rate of 1% of total net assets
attributable to SA-1 Contracts and ranging from .21% to .85% of total net assets
attributable to SA-2 Contracts) is made for mortality and expense risks assumed
by the Company under the variable portion of the Contract. The total of these
expenses and other charges is limited to a maximum of the rate imposed on SA-1
and SA-2 Contracts on April 1, 1987. (See prospectus for SA-1 and SA-2 contracts
dated April 20, 1987.) For Portfolio Director 2, a quarterly account maintenance
fee of $3.75 is as-
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sessed for each calendar quarter during the Purchase Period during which any
Variable Account Option Account Value is credited to a Participant's Account.
The fee is to reimburse the Company for some of the administrative expenses
associated with the Variable Account Options. No fee is assessed for any
calendar quarter if the Account Value is credited only to the Fixed Account
Options throughout the quarter. Such fee begins immediately if an exchange is
made into any Variable Account Option offered under Portfolio Director 2. The
fee may also be reduced or waived by the Company on Portfolio Director 2 if the
administrative expenses are expected to be lower for that Contract. (See
"Reduction or Waiver of Account Maintenance Fee, Surrender, Mortality and
Expense Risk Fee or Administration and Distribution Fee Charges" in the
prospectus.) To cover expenses not covered by the account maintenance fee and to
compensate the Company for assuming mortality risks and administration and
distribution expenses under Portfolio Director 2, an additional daily charge
with an annualized rate of 1.00% to 1.25% (or lower amounts during the Purchase
Period for different series of Portfolio Director 2), depending upon the
Variable Account Options selected, if any, on the average daily net asset value
of the Separate Account is attributable to Portfolio Director 2. (See "Separate
Account Charges" and "Separate Account Expense Reimbursement" in the
prospectus.)
Investment Options. Under SA-1 and SA-2 Contracts only one division of
VALIC Separate Account A is available as a variable investment alternative. This
division invests in a portfolio of AGSPC. This portfolio is managed by the
Company for advisory fees at an annual rate of .28% of the portfolio's average
daily net assets. (Under a "grandfathering" arrangement, the total advisory fees
and certain other charges imposed against these Contracts are limited to a
maximum of the rate charged on April 1, 1987. See the prospectus for these
Contracts dated April 20, 1987.) Under Portfolio Director 2, eighteen divisions
of VALIC Separate Account A are available, six of which invest in a different
investment portfolio of AGSPC and twelve divisions of which invest in other
publicly available mutual fund portfolios. These mutual fund portfolios are
managed by either the Company or other investment managers, for advisory fees at
annual rates ranging from .01% to 1.00% of each portfolio's or mutual fund's
average daily net assets. Additionally, two fixed investment options are
available under Portfolio Director 2.
Annuity Options. Annuity options under the SA-1 and SA-2 Contracts provide
for payments on a fixed or variable basis, or a combination of both. The SA-1
Contract annuity payments under a designated period option are limited to 15
years on a fixed basis only. Under this Contract, the designated period option
may, subject to adverse tax consequences, be commuted at any time for its
remaining value. SA-2 Contracts do not provide a designated period option nor do
they provide for commutation. Portfolio Director 2 permits Payout Payments for a
designated period of between 5 and 30 years on a fixed basis only. Portfolio
Director 2 does not provide for commutation. The SA-1 and SA-2 Contracts make no
provision for transfers from a separate account to a fixed annuity during the
annuity period. This option, subject to certain conditions, is available under
Portfolio Director 2. The SA-1 Contracts provide an option for monthly variable
annuity payments to be made at a level payment basis during each year of the
annuity period. Portfolio Director 2 does not provide this option. SA-1 and
Portfolio Director 2, but not SA-2 Contracts, both provide for "betterment of
rates." Under this provision, Payout Payments for fixed annuities will be based
on mortality tables then being used by the Company, if more favorable to the
Annuitant than those included in the Contract.
EXCHANGES FROM IMPACT CONTRACTS
Sales/Surrender Charges. Under an Impact Contract, no sales charge is
deducted at the time a Purchase Payment is made, but a surrender charge may be
imposed on partial or total surrenders. The surrender charge is equal to 5% of
the Purchase Payments withdrawn within three years of the date such Purchase
Payments were made. The most recent Purchase Payments are deemed to be withdrawn
first. Portfolio Director 2 also imposes a surrender charge upon total or
partial surrenders which may not exceed 5% of any Purchase Payments withdrawn
within the most recent five years prior to the receipt of the surrender request
by the Company at its Home Office. Portfolio Director 2 also has other
provisions where surrender charges are not imposed. (See "Exceptions to
Surrender Charge" in the pro-
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spectus.) For purposes of satisfying the fifteen-year and five-year holding
requirements, Portfolio Director 2 will be deemed to have been issued on the
same date as the Impact Contract, or certificate thereunder, but no earlier than
January 1, 1982. Only Purchase Payments exchanged into a Portfolio Director 2
which were made within three years before the date of exchange will be treated
as Purchase Payments under Portfolio Director 2 for purposes of calculating the
surrender charge. Exchanged payments will be deemed to have been made under
Portfolio Director 2 on the date they were made to Impact Contracts for purposes
of calculating the surrender charge under Portfolio Director 2.
Other Charges. Under Impact Contracts, a $30 annual charge is assessed once
a year to cover administrative expenses. The charge may, with prior regulatory
approval if required, be increased or decreased. In addition, a daily charge is
made at an annual rate of 1% of the net asset value allocable to the Impact
Contracts to cover administrative expenses (other than those covered by the
annual charge) and mortality risks assumed by the Company. For Portfolio
Director 2, a quarterly account maintenance fee of $3.75 is assessed for each
calendar quarter during the Purchase Period during which any Variable Account
Option Account Value is credited to a Participant's Account. The fee is to
reimburse the Company for some of the administrative expenses associated with
the Variable Account Options. No fee is assessed for any calendar quarter if the
Account Value is credited only to the Fixed Account Options throughout the
quarter. Such fee begins immediately if an exchange is made into any Variable
Account Option offered under Portfolio Director 2. The fee may also be reduced
or waived by the Company on Portfolio Director 2 if the administrative expenses
are expected to be lower for that Contract. (See "Reduction or Waiver of Account
Maintenance Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges" in the prospectus.) To cover expenses not covered by
the account maintenance fee and to compensate the Company for assuming mortality
risks and administration and distribution expenses under Portfolio Director 2,
an additional daily charge with an annualized rate of 1.00% to 1.25% (or lower
amounts during the Purchase Period for different series of Portfolio Director
2), depending upon the Variable Account Options selected, if any, on the daily
net asset value of the Separate Account is attributable to Portfolio Director 2.
(See "Separate Account Charges" and "Separate Account Expense Reimbursement" in
the prospectus.)
Investment Options. Under the Impact Contract five divisions of Separate
Account A are available as variable investment alternatives, each investing in
shares of a different underlying fund of AGSPC. The five mutual funds are
managed by the Company for advisory fees at annual rates ranging from .28% to
.50% of each respective portfolio's average daily net assets. Under Portfolio
Director 2, eighteen divisions of VALIC Separate Account A are available, six of
which invest in a different investment portfolio of AGSPC and twelve divisions
of which invest in other publicly available mutual fund portfolios. These mutual
fund portfolios are managed by either the Company, or other investment managers,
for advisory fees at annual rates ranging from .01% to 1.00% of each portfolio's
or mutual fund's average daily net assets. In addition, two fixed investment
options are available under Portfolio Director 2.
Annuity Options. Annuity options under Impact Contracts provide for
payments on a fixed or variable basis, or a combination of both. The Impact
Contract permits annuity payments for a designated period of 1 to 15 years on a
fixed basis only. Under an Impact Contract, the designated period option may,
subject to adverse tax consequences, be commuted at any time for its remaining
value. Portfolio Director 2 permits Payout Payments for a designated period of
between 5 and 30 years on a fixed basis only. Portfolio Director 2 does not
provide for commutation. Impact Contracts and the Portfolio Director 2 both
provide for "betterment of rates." Under this provision, Payout Payments for
fixed annuities will be based on mortality tables then being used by the
Company, if more favorable to the Annuitant than those included in the Contract.
EXCHANGES FROM COMPOUNDER CONTRACTS
Sales/Surrender Charges. Under a Compounder Contract a sales and
administrative charge is deducted from each Purchase Payment. This charge ranges
from 5% of the first $5,000 of Purchase Payments to 3% of Purchase Payments in
excess of $15,000. If a Compounder Contract is exchanged for Portfolio Director
2 the surrender charge under Portfolio Director 2 will not apply to
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the amount of Account Value applied to Portfolio Director 2. Purchase Payments
made to Portfolio Director 2, however, would be subject to the surrender charge
under Portfolio Director 2. In the case of a partial surrender, all Purchase
Payments to Portfolio Director 2 will be deemed to be withdrawn before any
Exchanged Amount is deemed to be withdrawn. Under Portfolio Director 2, no sales
charge is deducted at the time a Purchase Payment is made, but a surrender
charge may be imposed on partial or total surrenders. The surrender charge may
not exceed 5% of any Purchase Payments withdrawn within the most recent five
years prior to the receipt of the surrender request by the Company at its Home
Office. For purposes of this surrender charge, the most recent Purchase Payments
are deemed to be withdrawn first. (See "Surrender Charge" in the prospectus.)
Other Charges. A charge of a percentage of each Purchase Payment is made
for administrative expenses under a Compounder Contract. The charge is 1.25% and
is included in the above sales charge. For Portfolio Director 2, a quarterly
account maintenance fee of $3.75 is assessed for each calendar quarter during
the Purchase Period during which any Variable Account Option Account Value is
credited to a Participant's Account. The fee is to reimburse the Company for
some of the administrative expenses associated with the Variable Account
Options. No fee is assessed for any calendar quarter if the Account Value is
credited only to the Fixed Account Options throughout the quarter. Such fee
begins immediately if an exchange is made into any Variable Account Option
offered under Portfolio Director 2. The fee may also be reduced or waived by the
Company for Portfolio Director 2 if the administrative expenses are expected to
be lower for that Contract. (See "Reduction or Waiver of Account Maintenance
Fee, Surrender, Mortality and Expense Risk Fee or Administration and
Distribution Fee Charges" in this prospectus.) To cover expenses not covered by
the account maintenance fee and to compensate the Company for assuming mortality
risks and administration and distribution expenses under Portfolio Director 2,
an additional daily charge with an annualized rate of 1.00% to 1.25% (or lower
amounts during the Purchase Period for different series of Portfolio Director
2), depending upon the Variable Account Options selected, if any, on the daily
net asset value of the Separate Account is attributable to Portfolio Director 2.
(See "Separate Account Charges" and "Separate Account Expense Reimbursement" in
the prospectus.)
Investment Options. There are no variable investment alternatives provided
under Compounder Contracts.
Annuity Options. Payout Payments under a Compounder Contract are on a fixed
basis only and the designated period option is limited to a period of 15 years.
However, under a Compounder Contract, the designated period option may, subject
to adverse tax consequences, be commuted at any time for its remaining value.
Portfolio Director 2 allows Payout Payments be made on a fixed or variable
basis, or both. One option under the Portfolio Director 2 provides for a
designated period of 5 and 30 years on a fixed basis only. Portfolio Director 2
does not provide for commutation. Unlike Portfolio Director 2, the Compounder
Contracts contain no "betterment of rates" provision.
INFORMATION WHICH MAY BE APPLICABLE TO
ANY EXCHANGE
Guaranteed Annuity Rates. Mortality rates have improved since annuity rates
were developed for the other contracts. Therefore, the annuity rates guaranteed
in Portfolio Director 2 are less favorable to Contract Owners and Annuitants
than those guaranteed in the other contracts. However, the current annuity rates
being charged for fixed annuities under the "betterment of rates" provisions
discussed above are more favorable than those guaranteed under Portfolio
Director 2 or the other contracts. Of course, no assurance can be given that
this will continue to be true at the time of annuitization for a given contract.
Guaranteed annuity rate tables are set forth in your Contract or in current
endorsements thereto. Those guaranteed for Portfolio Director 2 are set forth
therein, and copies may be obtained from one of the Company's Regional Offices
listed on the inside back cover of this prospectus.
To satisfy a federal tax law requirement, non-spouse beneficiaries under
Portfolio Director 2 generally must receive the entire benefit payable upon the
death of the Annuitant over their life expectancy or within five years of the
Annuitant's death. This requirement may be inapplicable to certain other
contracts or certificates issued before January 19, 1985 if not exchanged.
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CALCULATION OF SURRENDER CHARGE
The surrender charge is discussed in the Prospectus under "Fees and Charges
- --Surrender Charge." Examples of calculation of the Surrender Charge upon total
and partial surrender are set forth below:
ILLUSTRATION OF SURRENDER CHARGE ON TOTAL SURRENDER
Example 1.
TRANSACTION HISTORY
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92......................... Purchase Payment $10,000
2/1/93......................... Purchase Payment 5,000
2/1/94......................... Purchase Payment 15,000
2/1/95......................... Purchase Payment 2,000
2/1/96......................... Purchase Payment 3,000
2/1/97......................... Purchase Payment 4,000
7/1/97......................... Total Purchase Payments (Assumes
Account Value is $50,000) 39,000
</TABLE>
Surrender Charge is lesser of (a) or (b):
<TABLE>
<S> <C> <C> <C>
a. Surrender Charge calculated on 60 months of Purchase Payments
1. Surrender Charge against Purchase Payment of 2/1/92......... $ 0
2. Surrender Charge against Purchase Payment of 2/1/93......... $ 250
3. Surrender Charge against Purchase Payment of 2/1/94......... $ 750
4. Surrender Charge against Purchase Payment of 2/1/95......... $ 100
5. Surrender Charge against Purchase Payment of 2/1/96......... $ 150
6. Surrender Charge against Purchase Payment of 2/1/97......... $ 200
Surrender Charge based on Purchase Payments (1 + 2 + 3 + 4 +
5 + 6)...................................................... $1,450
b. Surrender Charge calculated on the excess over 10% of the Account
Value at the time of surrender:
Account Value at time of surrender $ 50,000
Less 10% not subject to Surrender Charge -5,000
-----------
Subject to Surrender Charge 45,000
X .05
-----------
Surrender Charge based on Account
Value $ 2,250 ........................................... $2,250
c. Surrender Charge is the lesser of a or b......................... $1,450
</TABLE>
ILLUSTRATION OF SURRENDER CHARGE ON A 10% PARTIAL SURRENDER FOLLOWED BY A FULL
SURRENDER
Example 2.
TRANSACTION HISTORY (ASSUMES NO INTEREST EARNED)
<TABLE>
<CAPTION>
DATE TRANSACTION AMOUNT
---- ----------- ------
<S> <C> <C>
2/1/92......................... Purchase Payment $10,000
2/1/93......................... Purchase Payment 5,000
2/1/94......................... Purchase Payment 15,000
2/1/95......................... Purchase Payment 2,000
2/1/96......................... Purchase Payment 3,000
2/1/97......................... Purchase Payment 4,000
7/1/97......................... 10% Partial Surrender (Assumes 3,900
Account Value is $39,000)
8/1/97......................... Full Surrender 35,100
</TABLE>
a. Since this is the first partial surrender in this participant year,
calculate the excess over 10% of the value of the Purchase Units
10% of $39,000 = $3,900 [no charge on this 10% withdrawal]
b. The Account Value upon which Surrender Charge on the Full Surrender may
be calculated (levied) is $39,000 - $3,900 = $35,100
c. The Surrender Charge calculated on the Account Value withdrawn $35,100 X
.05 = $1,755
d. Since only $29,000 has been paid in Purchase Payments in the 60 months
prior to the Full Surrender, the charge can only be calculated on
$29,000. The $3,900 partial withdrawal does not reduce this amount.
Thus, the charge is $29,000 X (0.05) = $1,450.
19
<PAGE> 177
PURCHASE UNIT VALUE
The calculation of Purchase Unit value is discussed in the Prospectus under
"Purchase Period." The following illustrations show a calculation of a new Unit
value and the purchase of Purchase Units (using hypothetical examples):
ILLUSTRATION OF CALCULATION OF PURCHASE UNIT VALUE
Example 3.
<TABLE>
<S> <C>
1. Purchase Unit value, beginning of
period................................ $ 1.800000
2. Value of Fund share, beginning of
period................................ $21.200000
3. Change in value of Fund share........ $ .500000
4. Gross investment return (3)/(2)...... .023585
5. Daily separate account fee*.......... .000027
*Mortality and expense risk fee and
administration and distribution
fee of 1% per annum used for
illustrative purposes.
6. Net investment return (4)-(5)........ .023558
7. Net investment factor 1.000000+(6)... 1.023558
8. Purchase Unit value, end of period
(1)X(7)............................... $ 1.842404
</TABLE>
ILLUSTRATION OF PURCHASE OF PURCHASE UNITS (ASSUMING NO STATE PREMIUM TAX)
Example 4.
<TABLE>
<S> <C>
1. First Periodic Purchase Payment.......................... $ 100.00
2. Purchase Unit value on effective date of purchase (see
Example 3)............................................... $ 1.800000
3. Number of Purchase Units purchased (1)/(2)............... 55.556
4. Purchase Unit value for valuation date following purchase
(see Example 3).......................................... $ 1.842404
5. Value of Purchase Units in account for valuation date
following purchase (3)X(4)............................... $ 102.36
</TABLE>
PERFORMANCE CALCULATIONS*
AGSPC MONEY MARKET DIVISION YIELDS
CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION SIX
7-Day Current Yield: 4.12%
ILLUSTRATION OF CALCULATION OF CURRENT YIELD FOR AGSPC MONEY MARKET DIVISION SIX
Example 5.
The current yield quotation above is based on the seven days ended
September 30, 1997, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one Purchase Unit at the beginning of
the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return and then
multiplying the base period return by 365/7.
- ---------------
* For different series of Portfolio Director 2 which may have lower charges in
the Purchase Period the amount of the current yield, the effective yield or
the standardized yield, for the respective Division will be higher.
20
<PAGE> 178
CALCULATION OF EFFECTIVE YIELD FOR AGSPC MONEY MARKET DIVISION SIX
7-Day Effective Yield: 4.20%
ILLUSTRATION OF CALCULATION OF EFFECTIVE YIELD FOR
AGSPC MONEY MARKET DIVISION SIX
Example 6.
The effective yield quotation above is based on the seven days ended
September 30, 1997, the date of the most recent balance sheet included in the
registration statement ("base period"). It is computed by determining the net
change, exclusive of capital changes, in the value of a hypothetical
pre-existing account having a balance of one Purchase Unit at the beginning of
the period, subtracting a hypothetical charge reflecting deductions from
Contract Owner accounts, and dividing the difference by the value of the account
at the beginning of the base period to obtain the base period return and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7, and subtracting 1 from the result, according to the
following formula:
365/7
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) ] -1
STANDARDIZED YIELD FOR BOND FUND DIVISIONS
CALCULATION OF STANDARDIZED YIELD FOR BOND FUND DIVISIONS
<TABLE>
<CAPTION>
DIV. 13 DIV. 22 DIV. 23
-------- -------- --------
<S> <C> <C> <C>
Standardized Yield.......................................... 3.74% 6.86% 6.29%
</TABLE>
ILLUSTRATION OF CALCULATION OF STANDARDIZED YIELD FOR BOND FUND DIVISIONS
Example 7.
The standardized yield quotation based on a 30-day period ended September
30, 1997, the date of the most recent balance sheet of the Registrant included
in the registration statement is computed by dividing the net investment
income per Purchase Unit earned during the period by the maximum offering price
per Unit on the last day of the period, according to the following formula:
YIELD = 2 [( a - b + 1)6 - 1]
-----
cd
Where:
<TABLE>
<S> <C>
a = net investment income earned during the period by the Fund
attributable to shares owned by the Division
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of Purchase Units outstanding
during the period
d = the maximum offering price per Purchase Unit on the last day
of the period
</TABLE>
Yield on each Division is earned from dividends declared and paid by the
Fund, which are automatically reinvested in Fund shares.
21
<PAGE> 179
CALCULATION OF AVERAGE ANNUAL TOTAL RETURN
Average Annual Total Return quotations for the 1, 3, 5, and 10 year periods
ended September 30, 1997, the date of the most recent balance sheet included in
this registration statement, are computed by finding the average annual com-
pounded rates of over the 1, 3, 5, and 10 year periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P (1+T) = ERV
Where:
<TABLE>
<S> <C>
P = a hypothetical initial Purchase Payment of $1,000
T = average annual total return
n = number of years
ERV = redeemable value at the end of the 1, 3, 5 or 10 year
periods of a hypothetical $1,000 Purchase Payment made at
the beginning of the 1, 3, 5, or 10 year periods (or
fractional portion thereof)
</TABLE>
The Company may advertise standardized average annual total return which,
includes the surrender charge of up to 5% of Gross Purchase Payments received
during the most recent 60 months as well as non-standardized average annual
total returns which does not include a surrender charge or maintenance fee.
There is no sales charge for reinvested dividends. All recurring fees have
been deducted. For fees which vary with the account size, an account size equal
to that of the median account size has been assumed. Ending redeemable value has
been determined assuming a complete redemption at the end of the 1, 3, 5 or 10
year period and deduction of all nonrecurring charges at the end of each such
period.
22
<PAGE> 180
PERFORMANCE INFORMATION
HYPOTHETICAL $10,000 ACCOUNT VALUE AND
CUMULATIVE RETURN AS COMPARED TO BENCHMARKS TABLES.
The following tables show the Hypothetical $10,000 Account Value and
Cumulative Return of each Division as compared to the benchmarks shown. For
different series of Portfolio Director 2 which may have lower charges during the
purchase period those amounts shown in the following tables will be higher.
These performance calculations for the Divisions, and the methods used for
calculating them, are explained in the prospectus. (See "How To Review
Investment Performance of Separate Account Divisions" and "Variable Account
Options" in the prospectus.)
These tables compare hypothetical investment performance and percentage
changes in Purchase Unit values with the results of several benchmarks,
representing unmanaged market indices. The performance information has been
adjusted to reflect mortality and expense risk fees, and administration and
distribution fees, net of any expense reimbursements from the Underlying Fund.
Surrender charges, maintenance fees and premium taxes are not deducted. The
effect of these charges is to reduce total return to a Contract Owner. The
comparisons should be considered in light of the investment policies and
objectives of the Funds. Rates of return for the Divisions include reinvestment
of investment income, including capital gains, interest and dividends. The rates
of return on the market indices also have been adjusted to reflect reinvestment
of interest and dividends.
Price returns for the market indices are calculated by subtracting the
price level at the beginning of the year from the price level at the end of the
year and dividing the difference by the price level at the beginning of the
year. To calculate dollar values for the indices' Hypothetical $10,000 Account
Value presentation, price index values were substituted for Unit values in the
calculation described in the prospectus, and where applicable, dividend yields
were then added to determine the total returns applied in the dollar value
calculations. Similarly, to calculate Cumulative Return for the indices, the
Cumulative Return calculation described in the prospectus for Unit values of the
Divisions is used, substituting the Hypothetical $10,000 Account Value at the
end of each year for the Purchase Unit Value. No sales load, administrative
charges, or any other expenses have been deducted from the index calculations.
Additionally, the performance of a Division may from time to time be
compared with other Indexes which have been deemed by the Company relevant to
the Division.
These benchmarks do not reflect any charges for investment advisory fees,
brokerage commissions or other fees and expenses of the type charged at either
the Separate Account or Fund level. Therefore, the comparisons with these
benchmarks are of limited use.
THE PERFORMANCE RESULTS SHOWN IN THIS SECTION ARE NOT AN ESTIMATE OR
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE, AND DO NOT REPRESENT THE ACTUAL
EXPERIENCE OF AMOUNTS INVESTED BY A PARTICULAR PARTICIPANT.
PERFORMANCE COMPARED TO MARKET INDICES
The performance of AGSPC Growth Division Fifteen, AGSPC Science &
Technology Division Seventeen, AGSPC Social Awareness Division Twelve, AGSPC
Stock Index Division Ten, Founders Growth Division Thirty, Neuberger & Berman
Guardian Trust Division Twenty-nine, Putnam New Opportunities Division
Twenty-six, Scudder Growth and Income Division Twenty-one, and Vanguard/Windsor
II Division Twenty-four may be compared to the record of the Standard &
Poor's(R) Corporation ("S&P(R)")* Composite Stock Price Index ("S&P 500(R)
Index"). The S&P 500(R) Index is an unmanaged capitalization-weighted index of
500 stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. The Index represents approximately 70% of the aggregate United
States equity markets capitalization.
The performance of the AGSPC International Government Bond Division
Thirteen may be compared to the Salomon Brothers Non-US Dollar World Government
Bond Index ("Salomon In-
- ---------------
* "Standard & Poor's(R)", "S&P(R)" and "S&P 500(R)" are trademarks of Standard
and Poor's ("S&P"). The Stock Index Fund is not sponsored, endorsed, sold or
promoted by S&P and S&P makes no representation regarding the advisability of
investing in this Fund.
23
<PAGE> 181
dex"). Total returns with income reinvested for the Salomon index are published
using two methods. The first method includes gross income (income earned without
subtracting foreign income taxes which may be withheld from foreign investors).
The second method includes net income (income earned after subtracting estimated
foreign taxes). The Division currently compares its performance with the index
using the second method. The Salomon Index is an unmanaged aggregate index
composed of 673 issues from fifteen foreign countries. These countries include
Austria, Australia, Belgium, Canada, Denmark, Finland, France, Germany, Italy,
Japan, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom.
The performance of AGSPC Money Market Division Six may be compared to the
Certificate of Deposit Primary Offering by New York City Banks, 30 Day Index.
The index is a money market index which reflects the average rate paid by New
York Banks on certificates of deposit of more than $100,000. The Index for 30
days is published daily.
The performance of the American Century-Twentieth Century Ultra Division
Thirty-one may be compared to both the S&P 500(R) Index and the National
Association of Securities Dealers Automated Quotations (NASDAQ) Composite Price
Index. The S&P 500 Index is an unmanaged capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy through
changes in the aggregate market value of 500 stocks representing all major
industries. The S&P 500 Index represents approximately 70% of the aggregate
market capitalization of the United States equity market. The NASDAQ Composite
Price Index was developed by the National Association of Securities Dealers
(NASD) on May 17, 1971 with figures available from February 5, 1971, at which
time the index value was 100. Through NASDAQ, the NASD provides daily, weekly,
and monthly sets of stock price indicators for Over-the-Counter (OTC) securities
in different industry categories. As of the end of 1996, over 5,800 issues were
contained in the NASDAQ Composite Price Index.
The Putnam Global Growth Division Twenty-eight may be compared to the
Morgan Stanley Capital International World Index ("MSCI World Index"). Total
returns (with income reinvested) for the MSCI World Index is published using two
methods. The first method includes gross income (income earned without
subtracting foreign income taxes which may be withheld from foreign investors).
The second method includes net income (income earned after subtracting estimated
foreign taxes. The Division currently compares its performance with the index
using the second method. The MSCI World Index is an unmanaged capitalization
weighed index consisting of more than 1,500 issues from 22 countries as well as
certain South African gold mining issues. The countries include Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland,
Italy, Japan, Malaysia, the Netherlands, New Zealand, Norway, Singapore, Spain,
Sweden, Switzerland, the United Kingdom, and the United States.
The performance of the Putnam OTC & Emerging Growth Division Twenty-seven
may be compared to the Russell 2000(R) Index ("Russell 2000").** The Russell
2000 was developed in 1984 by the Frank Russell Trust Company to track the stock
market performance of small capitalization domestic stocks. The Russell 2000 is
market weighted and consists of approximately 2000 stocks. Stocks included in
the Russell 2000 are chosen by the Frank Russell Trust Company on the basis of
their market size.
The Templeton Foreign Division Thirty-two may be compared to the Morgan
Stanley Capital International Europe, Australia, and Far East Index ("EAFE
Index"). The EAFE Index, which commenced in 1969, is an unmanaged stock index
consisting of more than 1,000 companies from Europe, Australia and the Far East.
The index is capitalization weighted. It is a well known measure for
international stock performance. Total returns (with income reinvested) for the
EAFE Index are published using two methods. The first method includes gross
income (income earned without subtracting foreign income taxes which may be
withheld from foreign investors). The second method includes net income (income
- ---------------
** The Russell 2000(R) Index is a trademark/service mark of the Frank Russell
Trust Company. RussellTM is a trademark of the Frank Russell Trust Company.
24
<PAGE> 182
earned after subtracting estimated foreign taxes). The Division currently
compares it performance with the index using the second method.
The Vanguard Fixed Income Securities Fund -- Long-Term Corporate Division
Twenty-two may be compared to the Merrill Lynch Corporate Master Index. The
Merrill Lynch Corporate Master Index consists of an index of approximately 3,600
corporate bond holdings of which assets are rated BBB- to AAA. The average years
to maturity of these corporate bond holdings are approximately 12 years.
The performance of the Vanguard Fixed Income Securities Fund -- Long-Term
U.S. Treasury Portfolio Division Twenty-three may be compared to the Lehman
Brothers U.S. Treasury Long-Term Index. This index measures a Fund's sensitivity
to interest rate changes. This index was initiated in 1976 and is composed of
all bonds covered by the Lehman Brothers Treasury Bond Index with maturities of
ten years or greater.
The performance of the Vanguard/Welling-
ton Division Twenty-five may be compared to a Blended Index, a measure of the
investment performance of a balanced portfolio of stocks and bonds, comprised of
the S&P 500 Index (65%) and the Merrill Lynch Corporate Master Index (35%). The
S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks
designed to measure performance of the broad domestic economy through changes in
the aggregate market value of 500 stocks representing all major industries. The
S&P 500 Index represents approximately 70% of the aggregate market
capitalization of the United States equity markets. The Merrill Lynch Corporate
Master Index consists of an index of approximately 3,600 corporate bond holdings
of which assets are rated BBB- to AAA. The average years to maturity of the
corporate bond holdings are approximately 12 years.
25
<PAGE> 183
See "How to Review Investment Performance of Separate Account Divisions" in the
prospectus for information about how these returns were calculated.
AGSPC Growth Division Fifteen Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
GROWTH S&P 500
DIVISION FIFTEEN INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
04/29/94................................................. $10,000 $10,000
09/30/94................................................. 10,037 10,533
09/30/95................................................. 13,920 13,666
09/30/96................................................. 16,994 16,444
09/30/97................................................. 20,677 23,098
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Growth Division Fifteen.......... 106.77% -- 106.02% 21.67%
Benchmark Comparison
S&P 500 Index.......................... 130.98% -- 119.28% 40.46%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
AGSPC International Government Bond Division Thirteen Performance Compared to
Salomon Brothers
Non-U.S. Dollar World Government Bond Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1991
<TABLE>
<CAPTION>
SALOMON BROS.
NON-U.S. DOLLAR
WORLD
INTERNATIONAL GOVERNMENT BOND GOVERNMENT
DIVISION THIRTEEN BOND INDEX
- ------------------------------------------------------------------- ---------------
<S> <C> <C>
10/01/91................................................. $10,000 $10,000
09/30/92................................................. 11,993 12,324
09/30/93................................................. 12,589 13,231
09/30/94................................................. 12,980 13,930
09/30/95................................................. 14,991 16,361
09/30/96................................................. 15,469 16,980
09/30/97................................................. 15,171 16,803
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC International Government Bond
Division Thirteen..................... 51.71% 26.50% 16.88% (1.92)%
Benchmark Comparison
Salomon Bros. Non-U.S. Dollar World Gov-
ernment Bond Index.................... 68.03% 36.35% 20.63% 1.04%
</TABLE>
- ---------------
* This Division was initiated on October 1, 1991.
26
<PAGE> 184
AGSPC Money Market Division Six Performance Compared to Certificate of Deposit
Primary Offering by New York City Banks, 30 Day Index (Primary CD Index)
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
MONEY MARKET PRIMARY
DIVISION SIX CD INDEX
- -------------------------------------------------- --------
<S> <C> <C>
10/01/87................................ $10,000 $10,000
09/30/88................................ 10,494 10,683
09/30/89................................ 11,329 11,620
09/30/90................................ 12,115 12,563
09/30/91................................ 12,752 13,354
09/30/92................................ 13,098 13,826
09/30/93................................ 13,318 14,192
09/30/94................................ 13,616 14,630
09/30/95................................ 14,213 15,341
09/30/96................................ 14,789 16,045
09/30/97................................ 15,390 16,803
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Money Market Division Six............. 53.90% 17.50% 13.03% 4.07%
Benchmark Comparison
Primary CD Index............................ 68.03% 21.53% 14.85% 4.72%
</TABLE>
AGSPC Science & Technology Division Seventeen Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE APRIL 29, 1994
<TABLE>
<CAPTION>
AGSPC SCIENCE & TECHNOLOGY S&P 500
DIVISION SEVENTEEN INDEX
- ------------------------------------------------------------------- -------
<S> <C> <C>
04/29/94................................................. $10,000 $10,000
09/30/94................................................. 11,316 10,533
09/30/95................................................. 19,444 13,666
09/30/96................................................. 22,568 16,444
09/30/97................................................. 26,196 23,098
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Science & Technology Division
Seventeen............................ 161.96% -- 131.49% 16.07%
Benchmark Comparison
S&P 500 Index.......................... 130.98% -- 119.28% 40.46%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on April 29, 1994.
27
<PAGE> 185
AGSPC Social Awareness Division Twelve Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 2, 1989
<TABLE>
<CAPTION>
SOCIAL AWARENESS S&P 500
DIVISION TWELVE INDEX
- ------------------------------------------------------------------- -------
<S> <C> <C>
10/02/89................................................. $10,000 $10,000
09/30/90................................................. 8,988 9,083
09/30/91................................................. 11,313 11,913
09/30/92................................................. 12,031 13,230
09/30/93................................................. 13,735 14,950
09/30/94................................................. 13,453 15,501
09/30/95................................................. 17,345 20,112
09/30/96................................................. 20,916 24,200
09/30/97................................................. 28,924 33,991
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Social Awareness Division
Twelve............................... 189.24% 140.42% 115.01% 38.29%
Benchmark Comparison
S&P 500 Index.......................... 239.91% 156.93% 119.28% 40.46%
</TABLE>
- ---------------
* This Division was initiated on October 2, 1989.
AGSPC Stock Index Division Ten Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
STOCK INDEX S&P 500
DIVISION TEN INDEX
- ---------------------------------------------------------------------- -------------
<S> <C> <C>
10/01/87............................................... $ 10,000 $ 10,000
09/30/88............................................... 8,573 8,764
09/30/89............................................... 11,038 11,656
09/30/90............................................... 9,862 10,579
09/30/91............................................... 12,616 13,876
09/30/92............................................... 13,773 15,409
09/30/93............................................... 15,392 17,413
09/30/94............................................... 15,673 18,055
09/30/95............................................... 20,088 23,425
09/30/96............................................... 23,885 28,187
09/30/97............................................... 33,165 39,591
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Investment Division
AGSPC Stock Index Division Ten......... 231.65% 140.79% 111.61% 38.85%
Benchmark Comparison
S&P 500 Index.......................... 295.91% 156.93% 119.28% 40.46%
</TABLE>
28
<PAGE> 186
American Century -- Twentieth Century Ultra Division Thirty-One Performance
Compared to S&P 500 Index and NASDAQ Composite Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
NASDAQ
ULTRA S&P 500 COMPOSITE
DIVISION THIRTY-ONE INDEX INDEX*
- ------------------------------------------------------- ------------- ---------
<S> <C> <C> <C>
10/01/87................................ $ 10,000 $ 10,000 $10,000
09/30/88................................ 8,150 8,764 8,727
09/30/89................................ 11,820 11,656 10,644
09/30/90................................ 10,259 10,579 7,754
09/30/91................................ 18,672 13,876 11,859
09/30/92................................ 18,704 15,409 13,128
09/30/93................................ 27,689 17,413 17,169
09/30/94................................ 25,159 18,055 17,203
09/30/95................................ 35,294 23,425 23,488
09/30/96................................ 38,768 28,187 27,617
09/30/97................................ 49,320 39,591 37,941
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
American Century -- Twentieth Century
Ultra Division Thirty-One.......... 393.20% 163.68% 96.04% 27.22%
Benchmark Comparison
S&P 500 Index........................ 295.91% 156.93% 119.28% 40.46%
NASDAQ Composite Index*.............. 279.41% 189.01% 120.56% 37.39%
</TABLE>
- ---------------
* Does not include dividends reinvested.
Founders Growth Division Thirty Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
FOUNDERS GROWTH S&P 500
DIVISION THIRTY INDEX
- ----------------------------------------------------------------- --------
<S> <C> <C>
10/01/87............................................... $10,000 $10,000
09/30/88............................................... 8,243 8,764
09/30/89............................................... 12,290 11,656
09/30/90............................................... 9,872 10,579
09/30/91............................................... 13,122 13,876
09/30/92............................................... 13,556 15,409
09/30/93............................................... 19,442 17,413
09/30/94............................................... 18,672 18,055
09/30/95............................................... 25,674 23,425
09/30/96............................................... 30,161 28,187
09/30/97............................................... 39,230 39,591
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Founders Growth Division Thirty...... 292.30% 189.38% 110.11% 30.07%
Benchmark Comparison
S&P 500 Index........................ 295.91% 156.93% 119.28% 40.46%
</TABLE>
29
<PAGE> 187
Neuberger&Berman Guardian Trust Division Twenty-Nine Performance Compared to S&P
500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
GUARDIAN TRUST S&P 500
DIVISION TWENTY-NINE* INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
10/01/87................................................. $10,000 $10,000
09/30/88................................................. 9,663 8,764
09/30/89................................................. 12,138 11,656
09/30/90................................................. 9,896 10,579
09/30/91................................................. 13,580 13,876
09/30/92................................................. 15,713 15,409
09/30/93................................................. 18,759 17,413
09/30/94................................................. 19,698 18,055
09/30/95................................................. 25,791 23,425
09/30/96................................................. 27,338 28,187
09/30/97................................................. 37,595 39,591
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Neuberger&Berman Guardian Trust
Division Twenty-Nine............... 275.95% 139.26% 90.86% 37.52%
Benchmark Comparison
S&P 500 Index........................ 295.91% 156.93% 119.28% 40.46%
</TABLE>
- ---------------
* Neuberger&Berman Guardian Trust ("Trust") started operating on August 3, 1993.
It has identical investment objectives and policies and invests in, the same
portfolio as Neuberger&Berman Guardian Fund ("Fund"), which is also managed by
Neuberger&Berman Management Incorporated ("N&B"). The performance information
for the Trust before August 3, 1993 is for the Fund. N&B voluntarily bears
certain expenses of the Trust so that the Trust's expense ratio per annum will
not exceed the expense ratio per annum of the Fund by more than 0.10% of the
Trust's average daily net assets. This arrangement can be terminated on sixty
days' notice. Absent such arrangement, the average annual total returns of the
Trust would have been less. The total returns for the periods prior to the
Trust's commencement of operations would have been lower had they reflected
the higher expense ratios of the Trust as compared to those of the Fund.
Putnam Global Growth Division Twenty-Eight Performance Compared to MSCI World
Index and S&P 500 Index.
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
MSCI
GLOBAL GROWTH WORLD S&P 500
DIVISION TWENTY-EIGHT INDEX INDEX
- -------------------------------------------------- -------- --------
<S> <C> <C> <C>
10/01/87................................ $10,000 $10,000 $10,000
09/30/88................................ 8,132 9,355 8,764
09/30/89................................ 10,328 11,709 11,656
09/30/90................................ 9,198 9,185 10,579
09/30/91................................ 11,129 11,438 13,876
09/30/92................................ 11,078 11,321 15,409
09/30/93................................ 13,454 13,614 17,413
09/30/94................................ 14,730 14,643 18,055
09/30/95................................ 15,894 16,751 23,425
09/30/96................................ 18,056 19,041 28,187
09/30/97................................ 22,484 23,633 39,591
</TABLE>
30
<PAGE> 188
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Putnam Global Growth
Division Twenty-Eight..................... 124.84% 102.96% 52.64% 24.53%
Benchmark Comparison
MSCI World Index............................ 136.33 108.76% 61.40% 24.12%
S&P 500 Index............................... 295.91 156.93% 119.28% 40.46%
</TABLE>
Putnam New Opportunities Division Twenty-Six Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE AUGUST 31, 1990
<TABLE>
<CAPTION>
NEW OPPORTUNITIES S&P 500
DIVISION TWENTY-SIX INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
08/31/90................................................. $10,000 $10,000
09/30/90................................................. 9,162 9,513
09/30/91................................................. 16,173 12,478
09/30/92................................................. 18,111 13,857
09/30/93................................................. 28,528 15,659
09/30/94................................................. 30,206 16,236
09/30/95................................................. 41,611 21,065
09/30/96................................................. 52,026 25,347
09/30/97................................................. 58,972 35,603
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
SINCE
INCEPTION* 5 YEARS 3 YEARS 1 YEAR
---------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Putnam New Opportunities
Division Twenty-Six....................... 489.72% 225.62% 95.23% 13.35%
Benchmark Comparison
S&P 500 Index............................... 256.03% 156.93% 119.28% 40.46%
</TABLE>
- ---------------
* The Fund underlying this Division was initiated on August 31, 1990.
31
<PAGE> 189
Putnam OTC & Emerging Growth Division Twenty-Seven Performance Compared to
Russell 2000 Index and S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
OTC & EMERGING GROWTH RUSSELL S&P 500
DIVISION TWENTY-SEVEN 2000 INDEX
- -------------------------------------------------- -------- --------
<S> <C> <C> <C>
10/01/87................................ $10,000 $10,000 $10,000
09/30/88................................ 8,678 8,926 8,764
09/30/89................................ 11,575 10,847 11,656
09/30/90................................ 8,816 7,903 10,579
09/30/91................................ 12,561 11,469 13,876
09/30/92................................ 13,459 12,492 15,409
09/30/93................................ 19,605 16,639 17,413
09/30/94................................ 19,964 17,074 18,055
09/30/95................................ 29,092 21,070 23,425
09/30/96................................ 36,466 23,837 28,187
09/30/97................................ 38,759 31,802 39,591
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Putnam OTC & Emerging Growth
Division Twenty-Seven.............. 287.59% 187.97% 94.14% 6.29%
Benchmark Comparison
Russell 2000 Index................... 218.02% 154.58% 86.26% 33.42%
S&P 500 Index........................ 295.91% 156.93% 119.28% 40.46%
</TABLE>
Scudder Growth and Income Division Twenty-One Performance Compared to S&P 500
Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
SCUDDER GROWTH AND INCOME S&P 500
DIVISION TWENTY-ONE INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
10/01/87................................................. $10,000 $10,000
09/30/88................................................. 8,800 8,764
09/30/89................................................. 11,544 11,656
09/30/90................................................. 10,165 10,579
09/30/91................................................. 12,872 13,876
09/30/92................................................. 14,313 15,409
09/30/93................................................. 16,836 17,413
09/30/94................................................. 17,967 18,055
09/30/95................................................. 21,221 23,425
09/30/96................................................. 25,177 28,187
09/30/97................................................. 34,929 39,591
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Scudder Growth and Income
Division Twenty-One................ 249.29% 144.04% 94.40% 38.74%
Benchmark Comparison
S&P 500 Index........................ 295.91% 156.93% 119.28% 40.46%
</TABLE>
32
<PAGE> 190
Templeton Foreign Division Thirty-Two Performance Compared to EAFE Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
FOREIGN EAFE
DIVISION THIRTY-TWO INDEX
- ---------------------------------------------------------------------- -------------
<S> <C> <C>
10/01/87............................................... $ 10,000 $ 10,000
09/30/88............................................... 9,460 9,916
09/30/89............................................... 12,170 12,128
09/30/90............................................... 12,386 8,780
09/30/91............................................... 14,254 10,702
09/30/92............................................... 14,718 9,941
09/30/93............................................... 17,508 12,561
09/30/94............................................... 20,287 13,795
09/30/95............................................... 21,407 14,594
09/30/96............................................... 23,330 15,851
09/30/97............................................... 28,824 17,782
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Templeton Foreign Division Thirty-Two... 188.24% 95.85% 42.08% 23.55%
Benchmark Comparison
EAFE Index.............................. 77.82% 78.88% 28.90% 12.18%
</TABLE>
Vanguard Fixed Income Securities Fund -- Long-Term Corporate Portfolio Division
Twenty-Two Performance Compared to Merrill Lynch Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
MERRILL LYNCH
LONG-TERM CORPORATE CORPORATE MASTER
DIVISION TWENTY-TWO INDEX
- --------------------------------------------------------------- ----------------
<S> <C> <C>
10/01/87............................................. $10,000 $10,000
09/30/88............................................. 11,483 11,506
09/30/89............................................. 12,857 12,914
09/30/90............................................. 13,059 13,637
09/30/91............................................. 15,555 16,036
09/30/92............................................. 17,896 18,381
09/30/93............................................. 20,495 20,740
09/30/94............................................. 18,814 19,901
09/30/95............................................. 22,289 23,166
09/30/96............................................. 22,625 24,299
09/30/97............................................. 25,317 27,026
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard Fixed Income Securities Fund --
Long-Term Corporate Portfolio.......... 153.17% 41.47% 34.57% 11.90%
Benchmark Comparison
Merrill Lynch Corporate Master Index..... 170.26% 47.03% 35.81% 11.22%
</TABLE>
33
<PAGE> 191
Vanguard Fixed Income Securities Fund -- Long-Term U.S. Treasury Portfolio
Division Twenty-Three Performance Compared to Lehman Brothers U.S. Treasury
Long-Term Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
LEHMAN BROS.
U.S. TREASURY
LONG-TERM U.S. TREASURY LONG-TERM
DIVISION TWENTY-THREE INDEX
- --------------------------------------------------------------- -------------
<S> <C> <C>
10/01/87............................................. $10,000 $10,000
09/30/88............................................. 11,439 11,712
09/30/89............................................. 12,960 13,561
09/30/90............................................. 12,999 13,902
09/30/91............................................. 15,481 16,765
09/30/92............................................. 17,236 19,144
09/30/93............................................. 20,417 23,019
09/30/94............................................. 18,129 20,565
09/30/95............................................. 21,939 25,288
09/30/96............................................. 21,981 25,877
09/30/97............................................. 24,402 29,299
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard Fixed Income Securities
Fund -- Long-Term U.S. Treasury
Portfolio............................ 144.02% 41.57% 34.60% 11.01%
Benchmark Comparison
Lehman Brothers U.S. Treasury
Long-Term Index...................... 192.99% 53.04% 42.47% 13.22%
</TABLE>
Vanguard/Wellington Division Twenty-Five Performance Compared to S&P 500 Index
and Merrill Lynch Corporate Master Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
VANGUARD/WELLINGTON BLENDED
DIVISION TWENTY-FIVE INDEX*
- ------------------------------------------------------------------- --------
<S> <C> <C>
10/01/87................................................. $10,000 $10,000
09/30/88................................................. 9,846 9,744
09/30/89................................................. 11,875 12,229
09/30/90................................................. 10,736 11,730
09/30/91................................................. 13,551 14,829
09/30/92................................................. 14,695 16,673
09/30/93................................................. 16,573 18,840
09/30/94................................................. 16,843 19,020
09/30/95................................................. 20,604 23,773
09/30/96................................................. 23,476 27,290
09/30/97................................................. 29,600 35,393
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard/Wellington Division
Twenty-Five.......................... 196.00% 101.43% 75.74% 26.08%
Benchmark Comparison
Blended Index*......................... 253.93% 112.28% 86.08% 29.69%
</TABLE>
34
<PAGE> 192
- ---------------
* The Blended Index reflects an allocation of investments in the following
indexes: 65% of investments included in the S&P 500 Index and 35% of
investments included in the Merrill Lynch Corporate Master Index.
Vanguard/Windsor II Division Twenty-Four Performance Compared to S&P 500 Index
HYPOTHETICAL $10,000 ACCOUNT VALUE
ANNUAL VALUE OF A $10,000 STIPULATED PAYMENT MADE OCTOBER 1, 1987
<TABLE>
<CAPTION>
VANGUARD/WINDSOR II S&P 500
DIVISION TWENTY-FOUR INDEX
- ------------------------------------------------------------------- --------
<S> <C> <C>
10/01/87................................................. $10,000 $10,000
09/30/88................................................. 9,520 8,764
09/30/89................................................. 12,375 11,656
09/30/90................................................. 9,997 10,579
09/30/91................................................. 13,110 13,876
09/30/92................................................. 14,854 15,409
09/30/93................................................. 17,202 17,413
09/30/94................................................. 17,168 18,055
09/30/95................................................. 21,758 23,425
09/30/96................................................. 25,920 28,187
09/30/97................................................. 35,501 39,591
</TABLE>
CUMULATIVE RETURN COMPARED TO MARKET INDEX
(PERIOD ENDED SEPTEMBER 30, 1997)
<TABLE>
<CAPTION>
10 YEARS 5 YEARS 3 YEARS 1 YEAR
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Investment Division
Vanguard/Windsor II Division
Twenty-Four........................ 255.01% 139.00% 106.79% 36.96%
Benchmark Comparison
S&P 500 Index........................ 295.91% 156.93% 119.28% 40.46%
</TABLE>
35
<PAGE> 193
PAYOUT PAYMENTS
ASSUMED INVESTMENT RATE
The discussion concerning the amount of payout payments which follows this
section is based on an Assumed Investment Rate of 3 1/2% per annum. However, the
Company will permit each Annuitant choosing a variable payout option to select
an Assumed Investment Rate permitted by state law or regulations other than the
3 1/2% rate described in this prospectus as follows: 3%, 4 1/2%, 5% or 6% per
annum. (Note: an Assumed Investment Rate higher than 5% may not be selected
under individual Contracts.) The foregoing Assumed Investment Rates are used
merely in order to determine the first monthly payment per thousand dollars of
value. It should not be inferred that such rates will bear any relationship to
the actual net investment experience of VALIC Separate Account A.
AMOUNT OF PAYOUT PAYMENTS
The amount of the first variable annuity payment to the Annuitant will
depend on the amount of the Account Value applied to effect the variable annuity
as of the tenth day immediately preceding the date payout payments commence, the
amount of any premium tax owed, the annuity option selected, and the age of the
Annuitant.
The Contracts contain tables indicating the dollar amount of the first
payout payment under each payout option for each $1,000 of Account Value (after
the deduction for any premium tax) at various ages. These tables are based upon
the 1983 Table A (promulgated by the Society of Actuaries) and an Assumed
Investment Rate of 3%, 3 1/2%, 4% and 5% per annum (3 1/2% in the group
Contract).
The portion of the first monthly variable payout payment derived from a
Division of VALIC Separate Account A is divided by the Payout Unit value for
that Division (calculated ten days prior to the date of the first monthly
payment) to determine the number of Payout Units in each Division represented by
the payment. The number of such units will remain fixed during the Payout
Period, assuming the Annuitant makes no transfers of Payout Units to provide
Payout Units under another Division or to provide a fixed annuity.
In any subsequent month, the dollar amount of the variable payout payment
derived from each Division is determined by multiplying the number of Payout
Units in that Division by the value of such Payout Unit on the tenth day
preceding the due date of such payment. The Payout Unit value will increase or
decrease in proportion to the net investment return of the Division or Divisions
underlying the variable payout since the date of the previous payout payment,
less an adjustment to neutralize the 3 1/2% or other Assumed Investment Rate
referred to above.
Therefore, the dollar amount of variable payout payments after the first
will vary with the amount by which the net investment return is greater or less
than 3 1/2% per annum. For example, if a Division has a cumulative net
investment return of 5% over a one year period, the first payout payment in the
next year will be approximately 1 1/2 percentage points greater than the payment
on the same date in the preceding year, and subsequent payments will continue to
vary with the investment experience of the Division. If such net investment
return is 1% over a one year period, the first payout payment in the next year
will be approximately 2 1/2 percentage points less than the payment on the same
date in the preceding year, and subsequent payments will continue to vary with
the investment experience of the applicable Division.
Each deferred Contract provides that, when fixed payout payments are to be
made under one of the first four payout options, the monthly payment to the
Annuitant will not be less than the monthly payment produced by the then current
settlement option rates, which will not be less than the rates used for a
currently issued single payment immediate annuity contract. The purpose of this
provision is to assure the Annuitant that, at retirement, if the fixed payout
purchase rates then required by the Company for new single payment immediate
annuity contracts are significantly more favorable than the annuity rates
guaranteed by a Contract, the Annuitant will be given the benefit of the new
annuity rates.
PAYOUT UNIT VALUE
The value of a Payout Unit is calculated at the same time that the value of
an Purchase Unit
36
<PAGE> 194
is calculated and is based on the same values for Fund shares and other assets
and liabilities. (See "Purchase Period" in the prospectus.) The calculation of
Payout Unit value is discussed in the prospectus under "Payout Period."
The following illustrations show, by use of hypothetical examples, the
method of determining the Payout Unit value and the amount of variable annuity
payments.
ILLUSTRATION OF CALCULATION OF PAYOUT UNIT VALUE
Example 8.
<TABLE>
<S> <C>
1. Payout Unit value, beginning of period.................. $ .980000
2. Net investment factor for Period (see Example 3)........ 1.023558
3. Daily adjustment for 3 1/2% Assumed Investment Rate..... .999906
4. (2)X(3)................................................. 1.023462
5. Payout Unit value, end of period (1)X(4)................ $1.002993
</TABLE>
ILLUSTRATION OF PAYOUT PAYMENTS
Example 9. Annuitant age 65, Life Annuity with 120 Payments Certain
<TABLE>
<S> <C>
1. Number of Purchase Units at Payout Date................. 10,000.00
2. Purchase Unit value (see Example 3)..................... $ 1.800000
3. Account Value of Contract (1)X(2)....................... $18,000.00
4. First monthly Payout Payment per $1,000 of Account
Value..................................................... $ 5.63
5. First monthly Payout Payment (3)X(4)/1,000.............. $ 101.34
6. Payout Unit value (see Example 10)...................... $ .980000
7. Number of Payout Units (5)/(6).......................... 103.408
8. Assume Payout Unit value for second month equal to...... $ .997000
9. Second monthly Payout Payment (7)X(8)................... $ 103.10
10. Assume Payout Unit value for third month equal to....... $ .953000
11. Third monthly Payout Payment (7)X(10)................... $ 98.55
</TABLE>
37
<PAGE> 195
DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
The Company has qualified or intends to qualify the Contracts for sale in
all fifty states and the District of Columbia and will commence offering the
Contracts promptly upon qualification in each such jurisdiction.
The Contracts are sold in a continuous offering by licensed insurance
agents who are registered representatives of broker-dealers which are members of
the National Association of Securities Dealers, Inc. (the "NASD"). The principal
underwriter for VALIC Separate Account A is the Underwriter as defined above, a
wholly-owned subsidiary of the Company. The Underwriter's address is 2929 Allen
Parkway, Houston, Texas 77019. The Underwriter is a Texas corporation organized
in 1970 and is a member of the NASD.
The licensed agents who sell the Contracts will be compensated for such
sales by commissions ranging up to 5% of each Purchase Payment. Managers who
supervise the agents will receive overriding commissions ranging up to 1% of
Purchase Payments. (These various commissions are paid by the Company and do not
result in any charge to Contract Owners or to VALIC Separate Account A in
addition to the charges described under "Fees and Charges" in the prospectus.)
Pursuant to its underwriting agreement with the Underwriter and VALIC
Separate Account A, the Company reimburses the Underwriter for reasonable sales
expenses, including overhead expenses. Sales commissions for year 1996 were
$11,530,000.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1995, and for each of the three years in the period ended December 31, 1996,
and the financial statements of the Company's Separate Account A at December 31,
1996 and for each of the two years in the period then ended, appearing in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein. The financial statements audited by Ernst & Young LLP have been included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
38
<PAGE> 196
COMMENTS ON FINANCIAL STATEMENTS
The financial statements of The Variable Annuity Life Insurance Company
should be considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts, which include death benefits, and its
assumption of the mortality and expense risks.
Divisions Six, Ten, Twelve, Thirteen, Fifteen, Seventeen, Twenty-one,
Twenty-two, Twenty-three, Twenty-four, Twenty-five, Twenty-six, Twenty-seven,
Twenty-eight, Twenty-nine, Thirty, Thirty-one and Thirty-two are the only
Divisions available under the Contracts described in the Prospectus. The
Separate Account financial statements contained herein reflect the composition
of the Separate Account as of December 31, 1996, and for the fiscal year then
ended. Also contained herein are unaudited Separate Account financial statements
as of September 30, 1997.
39
<PAGE> 197
[THIS PAGE INTENTIONALLY LEFT BLANK]
40
<PAGE> 198
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
The Variable Annuity Life Insurance Company
We have audited the accompanying consolidated balance sheets of The
Variable Annuity Life Insurance Company and Subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, changes in
stockholder's equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Variable
Annuity Life Insurance Company and Subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG
Houston, Texas
February 14, 1997
<PAGE> 199
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
At December 31
In Thousands
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Investments - Notes 2, 6, 7, 8:
Fixed maturity securities
(amortized cost: $19,667,491 in 1996 and $18,590,102 in 1995) $20,189,473 $19,745,726
Equity securities (cost: $8,624 in 1996 and $56,825 in 1995) 8,589 71,770
Mortgage loans on real estate 1,349,855 1,443,817
Real estate, net of accumulated depreciation
of $69 in 1996 and $99 in 1995 37,130 23,365
Policy loans 639,200 557,637
Other long-term invested assets 35,945 16,929
Short-term investments 53,000 39,277
----------- -----------
Total investments 22,313,192 21,898,521
----------- -----------
Investment income receivable 315,118 292,967
Cash on deposit and on hand 24,360 27,794
Receivable for securities sold 18,654 51,947
Deferred policy acquisition costs - Note 3 557,748 182,546
Due from reinsurer, net 15,700 16,873
Other assets 45,798 37,912
Assets held in Separate Accounts 7,134,412 4,540,889
----------- -----------
Total assets $30,424,982 $27,049,449
----------- -----------
LIABILITIES
Policy reserves for fixed annuity investment contracts $21,067,429 $20,146,697
Payable for securities purchased 575 26,885
Remittances not allocated 66,473 52,913
Commissions, general expenses, and taxes (other than income taxes) 41,642 44,380
Other liabilities 75,636 51,768
Income tax liabilities - Note 4 265,160 387,076
Liabilities related to Separate Accounts 7,134,412 4,540,889
----------- -----------
Total liabilities 28,651,327 25,250,608
----------- -----------
STOCKHOLDER'S EQUITY
Common stock (voting) par value $1 per share, 5,000 shares authorized
and 3,575 issued and outstanding in 1996 and 1995 - Note 5 3,575 3,575
Additional paid-in capital 459,281 384,126
Retained earnings 1,143,947 1,014,520
Net unrealized investment gains - Note 2 166,852 396,620
----------- -----------
Total stockholder's equity 1,773,655 1,798,841
----------- -----------
Total liabilities and stockholder's equity $30,424,982 $27,049,449
----------- -----------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 200
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Surrender charges $ 12,348 $ 9,967 $ 9,964
Mortality charges 59,955 34,965 21,136
Expense charges 5,654 5,122 5,528
Net investment income - Note 2 1,654,496 1,597,681 1,493,942
Net reinsurance income 1,528 1,573 1,908
Realized investment gains (losses) - Note 2 21,551 (7,149) (71,950)
Other income 10,920 6,878 6,517
----------- ----------- -----------
Total revenues 1,766,452 1,649,037 1,467,045
----------- ----------- -----------
COSTS AND EXPENSES
Policy costs:
Increase in policy reserves for fixed annuity contracts 1,243,993 1,203,986 1,133,547
----------- ----------- -----------
Total costs 1,243,993 1,203,986 1,133,547
----------- ----------- -----------
Expenses:
Commissions 97,630 84,670 73,198
Salaries 54,016 48,227 42,742
Data processing 12,088 13,200 10,908
Postage and telephone 11,308 10,710 8,137
Sales promotion 10,394 9,361 8,024
Printing and supplies 5,290 4,721 4,372
Guaranty association assessments - Note 9 2,678 18,961 6,300
Other expenses 49,875 44,055 43,029
Amortization of deferred policy acquisition costs - Note 3 31,201 16,841 13,263
Policy acquisition costs deferred - Note 3 (116,818) (104,702) (88,046)
----------- ----------- -----------
Total expenses 157,662 146,044 121,927
----------- ----------- -----------
Total costs and expenses 1,401,655 1,350,030 1,255,474
----------- ----------- -----------
EARNINGS
Income before income tax expense 364,797 299,007 211,571
Income tax expense - Note 4 124,370 99,720 70,183
----------- ----------- -----------
Net income $ 240,427 $ 199,287 $ 141,388
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 201
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning and end of year $ 3,575 $ 3,575 $ 3,575
----------- ----------- -----------
ADDITIONAL PAID-IN-CAPITAL
Balance at beginning of year 384,126 382,733 382,727
Capital contribution from stockholder 75,155 1,393 6
----------- ----------- -----------
Balance at end of year 459,281 384,126 382,733
----------- ----------- -----------
RETAINED EARNINGS
Balance at beginning of year 1,014,520 910,233 821,845
Net income 240,427 199,287 141,388
Dividends paid to stockholder (111,000) (95,000) (53,000)
----------- ----------- -----------
Balance at end of year 1,143,947 1,014,520 910,233
----------- ----------- -----------
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance at beginning of year 396,620 (563,481) 348,470
Change during year (229,768) 960,101 (911,951)
----------- ----------- -----------
Balance at end of year 166,852 396,620 (563,481)
----------- ----------- -----------
STOCKHOLDER'S EQUITY
Balance at end of year $ 1,773,655 $ 1,798,841 $ 733,060
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 202
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
In Thousands
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 240,427 $ 199,287 $ 141,388
Reconciling adjustments to net cash provided by
operating activities:
Insurance and annuity liabilities 1,243,993 1,203,986 1,133,547
Deferred policy acquisition costs (85,617) (87,861) (74,783)
Other, net (50,233) 28,179 (41,944)
------------ ------------ ------------
Net cash provided by operating activities 1,348,570 1,343,591 1,158,208
------------ ------------ ------------
INVESTING ACTIVITIES
Investment purchases (14,883,271) (9,671,304) (7,827,877)
Investment calls, maturities, and sales 13,897,479 8,025,420 6,456,637
Net (increase) decrease in short-term investments (13,722) 120,745 (160,022)
------------ ------------ ------------
Net cash used for investing activities (999,514) (1,525,139) (1,531,262)
------------ ------------ ------------
FINANCING ACTIVITIES
Policyholder account deposits 2,896,090 2,553,928 2,227,803
Policyholder account withdrawals (1,276,008) (996,324) (1,004,953)
Transfers to Separate Accounts (1,936,727) (1,273,778) (723,994)
Capital contribution from stockholder 75,155 1,607 6
Net decrease in short-term debt -- -- (59,000)
Dividends paid (111,000) (95,000) (53,000)
------------ ------------ ------------
Net cash used for or provided by financing activities (352,490) 190,433 386,862
------------ ------------ ------------
NET CHANGE IN CASH
Net increase (decrease) in cash (3,434) 8,885 13,808
Cash at beginning of year 27,794 18,909 5,101
------------ ------------ ------------
Cash at end of year $ 24,360 $ 27,794 $ 18,909
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 203
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
All dollar amounts in thousands, except per share data
- --------------------------------------------------------------------------------
1
================================================================================
SIGNIFICANT ACCOUNTING POLICIES
================================================================================
1.1 INTRODUCTION
The Variable Annuity Life Insurance Company (VALIC), an indirect, wholly
owned subsidiary of American General Corporation (AGC), provides tax-deferred
retirement annuities and employer-sponsored retirement plans to employees of
educational, health care, public sector, and not-for-profit organizations.
VALIC markets products nationwide through exclusive sales representatives.
VALIC is 100% owned by American General Life Insurance Company (AGL), a
wholly owned subsidiary of AGC Life Insurance Company (AGC Life). AGC Life is a
wholly owned subsidiary of AGC. A summary of the accounting policies followed
in the preparation of the consolidated financial statements is set forth below.
1.2 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) and include the accounts
of VALIC and its wholly owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation. Certain items in the prior
years' financial statements have been reclassified to conform with the 1996
presentation.
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and disclosures of contingent assets and liabilities. Ultimate
results could differ from these estimates.
1.3 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES. All fixed maturity and equity
securities are classified as available-for-sale and recorded at fair value.
After adjusting related balance sheet accounts as if the unrealized gains
(losses) had been realized, the net adjustment is recorded in net unrealized
gains (losses) on securities within stockholder's equity. If the fair value of
a security classified as available-for-sale declines below its cost and this
decline is considered to be other than temporary, the security is reduced to
its fair value, and the reduction is recorded as a realized loss.
MORTGAGE LOANS. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance for losses covers all non-performing loans
and loans for which management has a concern based on its assessment of risk
factors, such as potential non-payment or non-monetary default. The allowance
is based on a loan-specific review and a formula that reflects past results and
current trends.
Impaired loans, those for which VALIC determines that it is probable that
all amounts due under the contractual terms will not be collected, are reported
at the lower of amortized cost or fair value of the underlying collateral, less
estimated costs to sell.
POLICY LOANS. Policy loans are reported at unpaid principal balance.
INVESTMENT INCOME. Interest on fixed maturity securities and performing
mortgage loans is recorded as income when earned and is adjusted for any
amortization of premium or discount. Interest on delinquent mortgage loans is
recorded as income when received. Dividends are recorded as income on
ex-dividend dates.
REALIZED INVESTMENT GAINS (LOSSES). Realized investment gains (losses) are
recognized using the specific identification method.
1.4 DERIVATIVES RELATED TO INVESTMENTS
VALIC's use of derivative financial instruments is generally limited to
interest rate and currency swap agreements. The difference between amounts paid
and received on swap agreements is recorded on an accrual basis as an
adjustment to investment income over the periods covered by the agreements. The
related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of swap agreements are recognized in the consolidated
balance sheet if they hedge investments carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains (losses) on
securities included in stockholder's equity, consistent with the treatment of
the related investment security.
For swap agreements hedging anticipated investment purchases, the net swap
settlement amount or unrealized gain or loss is deferred and included in the
measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into
income over the remaining term of the related investment. If the underlying
investment is extinguished or sold, any related gain or loss on swap agreements
is recognized in income.
6
<PAGE> 204
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
1.5 DEFERRED POLICY ACQUISITION COSTS
(DPAC)
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC. DPAC
is charged to expense in relation to the estimated gross profits of the
insurance contracts, including realized gains (losses).
DPAC is adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in net unrealized gains
(losses) on securities within stockholder's equity.
VALIC reviews the carrying value of DPAC on at least an annual basis.
Management considers estimated future gross profit margins as well as expected
mortality, interest earned and credited rates, persistency, and expenses in
determining whether the carrying amount is recoverable.
1.6 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain
contracts, principally annuities for which the investment risk lies solely with
the holder of the contract rather than the company. Consequently, the insurer's
liability for these accounts equals the value of the account assets. Investment
income, realized investment gains (losses), and policyholder account deposits
and withdrawals related to Separate Accounts are excluded from the consolidated
statements of income and cash flows. Assets held in the Separate Accounts are
primarily shares in mutual funds, which are carried at fair value, based on the
quoted net asset value per share.
1.7 POLICY RESERVES
Net deposits made by fixed annuity policyholders are accumulated at
interest rates guaranteed by VALIC plus excess interest paid at the sole
discretion of the Board of Directors until benefits are payable. Reserves for
deferred annuities (accumulation phase) are equivalent to the policyholders'
account values. Reserves for annuities on which benefits are currently payable
(annuity payout phase) are provided based upon estimated mortality and other
assumptions, including provisions for the risk of adverse deviation from
assumptions, which were appropriate at the time the contracts were issued. The
1971 Individual or Group Annuity Mortality Tables, and the 1983a Table have
been used to provide for future annuity benefits in the annuity payout phase.
Interest rates used in determining reserves for policy benefits during both the
accumulation and annuity payout phases range from 3.5% to 13.5%.
1.8 RECOGNITION OF REVENUES AND COSTS
Premium receipts for annuity contracts are classified as deposits instead
of revenues. Revenues for these contracts consist of the mortality, expense,
and surrender charges. Gains (losses) from mortality guarantees under variable
annuity contracts are recognized as they occur.
1.9 INCOME TAXES
Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income
tax expense.
A valuation allowance for deferred tax assets is provided if all or some
portion of the deferred tax asset may not be realized. An increase or decrease
in a valuation allowance that results from a change in circumstances that
causes a change in judgment about the realizability of the related deferred tax
asset is included in income. A change related to fluctuations in fair value of
available-for-sale fixed maturity securities is included in net unrealized
gains (losses) in stockholder's equity.
1.10 STATUTORY ACCOUNTING
State insurance laws and regulations prescribe accounting practices for
calculating statutory net income and equity (capital and surplus) that differ
from GAAP. Net income and stockholder's equity as determined by statutory
accounting practices at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net Income $ 213,686 $ 157,622 $ 171,486
---------- ---------- ----------
Stockholder's equity $1,077,366 $ 926,654 $ 869,026
---------- ---------- ----------
</TABLE>
7
<PAGE> 205
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
2
===============================================================================
INVESTMENTS
===============================================================================
2.1 INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Non-affiliated fixed
maturity securities $1,471,879 $1,414,644 $1,300,028
Affiliated fixed
maturity securities 2,851 3,181 3,342
Equity securities 782 4,281 2,529
Mortgage loans on
real estate 140,492 149,974 163,263
Other 51,040 36,473 36,226
---------- ---------- ----------
Gross investment income 1,667,044 1,608,553 1,505,388
Investment expenses 12,548 10,872 11,446
---------- ---------- ----------
Net investment income $1,654,496 $1,597,681 $1,493,942
---------- ---------- ----------
</TABLE>
The carrying value of investments that produced no investment income
during 1996 totaled $6,455 or 0.03% of total invested assets. The ultimate
disposition of these assets is not expected to have a material effect on
VALIC's consolidated results of operations or financial position.
Derivative financial instruments related to investment securities did not
have a material effect on net investment income in any of the three years ended
December 31, 1996.
2.2 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Fixed maturity securities $ 1,417 $ 832 $(83,950)
Equity securities 15,795 7,706 2,143
Mortgage loans on real estate 4,635 (24,465) (11,640)
Real estate 389 3,767 1,608
Other (685) 5,011 19,889
-------- -------- --------
Realized gains (losses)
before taxes 21,551 (7,149) (71,950)
Income tax expense (benefit) 7,543 (1,414) (25,183)
-------- -------- --------
Net realized investment
gains (losses) $ 14,008 $ (5,735) $(46,767)
-------- -------- --------
</TABLE>
Proceeds from sales of fixed maturity securities were $3,052,550,
$1,432,183, and $1,128,925 during 1996, 1995, and 1994, respectively. Gross
gains of $28,173, $15,722, and $7,610 and gross losses of $36,802, $30,518, and
$89,917, were realized on those sales during 1996, 1995, and 1994,
respectively.
During fourth quarter 1994, AGC initiated a program to realize capital
losses for tax purposes to offset prior period capital gains. During 1995, AGC
received a tax refund of $45,944 generated by $126,285 in net capital losses
realized in fourth quarter 1994 primarily through the sale of fixed maturity
securities. In conjunction with this program, VALIC realized net capital losses
for tax purposes of $110,019 in fourth quarter 1994, primarily through the sale
of $1,186,197 of fixed maturity securities. Due to declining interest rates
during 1995, which resulted in increasing values of VALIC's fixed maturity
securities, no additional capital losses were realized under this program.
2.3 FIXED MATURITY AND EQUITY SECURITIES
VALUATION. Amortized cost and fair value of fixed maturity and equity
securities at December 31 were as follows:
<TABLE>
<CAPTION>
Amortized Cost Gross Unrealized Gains
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 219,426 $ 173,879 $ 20,025 $ 33,063
Obligations of states and
political subdivisions 32,308 32,349 840 1,467
Debt securities issued by
foreign governments 241,908 238,592 10,958 19,639
Corporate securities 13,211,735 11,338,933 457,461 792,302
Mortgage-backed securities 5,932,878 6,771,473 150,021 333,436
Affiliated fixed maturity securities 29,236 32,275 -- --
Redeemable preferred stock -- 2,601 -- --
----------- ----------- ----------- -----------
Total fixed maturity securities $19,667,491 $18,590,102 $ 639,305 $ 1,179,907
----------- ----------- ----------- -----------
Equity securities $ 8,624 $ 56,825 $ 61 $ 14,966
=========== =========== =========== ===========
<CAPTION>
Gross Unrealized Losses Fair Value
------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ (465) $ (25) $ 238,986 $ 206,917
Obligations of states and
political subdivisions (197) (15) 32,951 33,801
Debt securities issued by
foreign governments (122) -- 252,744 258,231
Corporate securities (76,389) (20,225) 13,592,807 12,111,010
Mortgage-backed securities (40,150) (3,924) 6,042,749 7,100,985
Affiliated fixed maturity securities -- -- 29,236 32,275
Redeemable preferred stock -- (94) -- 2,507
----------- ----------- ----------- -----------
Total fixed maturity securities $ (117,323) $ (24,283) $20,189,473 $19,745,726
----------- ----------- ----------- -----------
Equity securities $ (96) $ (21) $ 8,589 $ 71,770
=========== =========== =========== ===========
</TABLE>
8
<PAGE> 206
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
2.3 FIXED MATURITY AND EQUITY SECURITIES-
(CONTINUED)
MATURITIES. The contractual maturities of fixed maturity securities at
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities, due
In one year or less $ 125,977 $ 127,799
In years two through five 2,601,072 2,705,686
In years six through ten 7,872,259 8,097,598
After ten years 3,135,304 3,215,641
Mortgage-backed securities 5,932,879 6,042,749
----------- -----------
Total fixed maturity securities $19,667,491 $20,189,473
----------- -----------
</TABLE>
Actual maturities may differ from contractual maturities since borrowers
may have the right to call or prepay obligations. Corporate requirements and
investment strategies may result in the sale of investments before maturity.
2.4 NET UNREALIZED GAINS (LOSSES) ON
SECURITIES
Net unrealized gains (losses) on fixed maturity and equity securities
included in stockholder's equity at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Gross unrealized gains $ 639,366 $ 1,194,873
Gross unrealized losses (117,419) (24,304)
DPAC adjustments (261,363) (551,624)
Deferred federal income taxes (93,732) (222,325)
----------- -----------
Net unrealized gains
on securities $ 166,852 $ 396,620
----------- -----------
</TABLE>
2.5 MORTGAGE LOANS ON REAL ESTATE -
(CONTINUED)
DIVERSIFICATION. Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, VALIC requires loan-to-value ratios of 75% or less, based
on management's credit assessment of the borrower.
2.5 MORTGAGE LOANS ON REAL ESTATE -
(CONTINUED)
At December 31 the mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Geographic distribution:
Atlantic $ 656,073 $ 677,739
Pacific and Mountain 406,948 455,009
Central 331,411 365,282
Allowance for losses (44,577) (54,213)
----------- -----------
Total mortgage loans $ 1,349,855 $ 1,443,817
----------- -----------
Property type:
Office $ 456,818 $ 478,493
Retail 451,668 461,272
Industrial 221,532 223,374
Apartments 190,583 242,469
Residential and other 73,831 92,422
Allowance for losses (44,577) (54,213)
----------- -----------
Total mortgage loans $ 1,349,855 $ 1,443,817
----------- -----------
</TABLE>
ALLOWANCE. The allowance for mortgage loan losses was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 54,213 $ 55,665 $ 48,612
Net additions (a) (3,845) 12,619 9,926
Deductions (b) (5,791) (14,071) (2,873)
--------- --------- ---------
Balance at December 31 $ 44,577 $ 54,213 $ 55,665
--------- --------- ---------
</TABLE>
(a) Charged to realized investment losses.
(b) Resulting from foreclosures.
IMPAIRED LOANS. Impaired mortgage loans on real estate and related
interest income were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Impaired loans:
With allowance* $ 46,346 $ 63,167
Without allowance 236 2,577
--------- ---------
Total impaired loans $ 46,582 $ 65,744
--------- ---------
Average investment $ 56,163 $ 83,049
Interest income earned 4,816 7,012
Interest income - cash basis 4,617 6,539
--------- ---------
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of
$6,848 and $17,701, respectively.
9
<PAGE> 207
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
3
================================================================================
DEFERRED POLICY ACQUISITION COSTS (DPAC)
================================================================================
DPAC at December 31, and the components of the change for the years then
ended, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance at January 1 $ 182,546 $ 910,479 $ 113,116
Deferrals:
Commissions 62,760 52,959 44,899
Other acquisition costs 54,058 51,743 43,147
Amortization:
Accretion of interest 59,810 54,086 47,170
Operating earnings (91,011) (70,927) (60,433)
Offset to realized
(gains) losses (676) 4,991 19,812
Effect of net unrealized
(gains) losses on securities 290,261 (820,785) 702,768
--------- --------- ---------
Balance at December 31 $ 557,748 $ 182,546 $ 910,479
--------- --------- ---------
</TABLE>
4
================================================================================
INCOME TAXES
================================================================================
4.1 TAX-SHARING AGREEMENT
VALIC, combined with its Separate Accounts, is taxed as a life insurance
company. VALIC and the Separate Accounts are included in the consolidated life
insurance company tax return of AGC. VALIC participates in a tax-sharing
agreement with the other companies included in the consolidated return. Under
this agreement, tax payments are made to AGC as if the companies filed separate
tax returns and companies incurring operating losses and/or capital losses are
reimbursed for the use of these losses by the consolidated return group.
4.2 TAX LIABILITIES
Components of income tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current tax liabilities (assets) $ (4,551) $ 10,740
Deferred tax liabilities, applicable to:
Basis differential of investments 201,122 428,863
DPAC 192,815 61,915
Other 8,025 2,480
--------- ---------
Total deferred tax liabilities 401,962 493,258
--------- ---------
Deferred tax assets, applicable to:
Policy reserves (118,595) (100,014)
Basis differential of investments (6,219) (7,527)
Other (7,437) (9,381)
--------- ---------
Total deferred tax assets (132,251) (116,922)
--------- ---------
Net deferred tax liabilities 269,711 376,336
--------- ---------
Total income tax liabilities $ 265,160 $ 387,076
--------- ---------
</TABLE>
4.3 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal $ 99,560 $ 99,273 $ 52,973
State 2,842 3,224 2,368
--------- --------- ---------
Total current income
tax expense 102,402 102,497 55,341
--------- --------- ---------
Deferred, applicable to:
DPAC 29,308 32,174 32,800
Policy reserves (18,581) (28,780) (31,085)
Basis differential of
investments 2,754 (786) 7,189
Other, net 8,487 (5,385) 5,938
--------- --------- ---------
Total deferred income
tax expense (benefit) 21,968 (2,777) 14,842
--------- --------- ---------
Income tax expense $ 124,370 $ 99,720 $ 70,183
--------- --------- ---------
</TABLE>
A reconciliation between the federal income tax rate and the effective tax
rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Income tax expense at
applicable rate $ 127,679 $ 104,652 $ 74,050
Dividends received
deduction (4,935) (3,883) (3,392)
Tax-exempt interest (ESOP) (3,865) (4,426) (4,670)
State income taxes 3,311 2,918 7,051
Other items 2,180 459 (2,856)
--------- --------- ---------
Income tax expense $ 124,370 $ 99,720 $ 70,183
--------- --------- ---------
</TABLE>
Federal income taxes paid in 1996, 1995, and 1994 were $114,478, $52,790,
and $122,608, respectively. State income taxes paid in 1996, 1995 and 1994 were
$3,060, $2,653, and $3,390 respectively.
10
<PAGE> 208
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
5
================================================================================
CAPITAL STOCK
================================================================================
VALIC has two classes of capital stock: preferred stock ($1.00 par value
with 2 million shares authorized) that may be issued with such dividend,
liquidation, redemption, conversion, voting, and other rights as the board of
directors may determine, and common stock ($1.00 par value, 5 million shares
authorized).
VALIC is restricted by state insurance laws as to the amount it may pay as
dividends without prior approval from the Texas Department of Insurance. The
maximum dividend payout which may be made without prior approval in 1997 is
$205,992.
6
================================================================================
DERIVATIVE FINANCIAL INSTRUMENTS
================================================================================
Derivative financial instruments related to investment securities at
December 31, 1996 were as follows:
<TABLE>
<S> <C>
Interest rate swap agreements to pay fixed rate
Notional amount $27,000
Average receive rate 6.88%
Average pay rate 5.61
Currency swap agreements (receive U.S.$/pay Canadian$)
Notional amount (in U.S.$) $89,535
Average exchange rate 1.56
</TABLE>
7
================================================================================
FAIR VALUE OF FINANCIAL INSTRUMENTS
================================================================================
Carrying amounts and fair values for certain of VALIC's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all VALIC's assets and liabilities, and
(2) the reporting of investments at fair value without a corresponding
revaluation of related policyholder liabilities can be misinterpreted.
<TABLE>
<CAPTION>
1996 1995
------------------------------ -----------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $20,198,062* $20,198,062* $19,817,496* $19,817,496*
Mortgage loans on real estate 1,352,994 1,349,855 1,473,598 1,443,817
Policy loans 637,870 639,200 567,199 557,637
Liabilities
Insurance investment contracts 19,753,088 21,067,429 19,883,419 20,146,697
----------- ----------- ----------- -----------
</TABLE>
* Includes derivative financial instruments with negative fair value of $7,872
in 1996 and negative fair value of $1,121 in 1995.
The following methods and assumptions were used to estimate the fair
values of financial instruments.
FIXED MATURITY AND EQUITY SECURITIES. Fair values of fixed maturity and
equity securities were based on quoted market prices, where available. For
investments not actively traded, fair values were estimated using values
obtained from independent pricing services or, in the case of some private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
MORTGAGE LOANS ON REAL ESTATE. Fair value of mortgage loans was estimated
primarily using discounted cash flows, based on contractual maturities and
risk-adjusted discount rates.
POLICY LOANS. Fair value of policy loans was estimated using discounted
cash flows and actuarially-determined assumptions, incorporating market rates.
INSURANCE INVESTMENT CONTRACTS. Fair value of insurance investment
contracts was estimated using cash flows discounted at market interest rates.
11
<PAGE> 209
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
8
================================================================================
TRANSACTIONS WITH AFFILIATED COMPANIES
================================================================================
In the ordinary course of business, VALIC is occasionally involved in
transactions with affiliated companies. Transactions involving the purchase or
disposal of securities are consummated at the market value of the security on
the date of the transaction. Transactions with affiliated companies during each
of the three years in the period ended December 31, 1996 were as follows:
Operating expenses include $17,533 in 1996, $21,173 in 1995, and $23,138
in 1994 for amounts paid to AGC or its subsidiaries primarily for rent, data
processing services, use of facilities, and investment expenses. Interest paid
on borrowings from AGC totaled $455 in 1996, $1,662 in 1995, and $525 in 1994.
On November 4, 1982, VALIC invested $11,853 in 13 1/2% Restricted
Subordinated Notes due November 4, 2002 issued by AGC. The principal amount of
the note is due November 4, 2002. Principal payments of $592 were received on
November 4, 1996, 1995, and 1994. VALIC recognized $1,372 in interest income
during 1996, $1,452 for 1995, and $1,532 for 1994.
On December 31, 1984, VALIC entered into a $48,929 note purchase agreement
with AGC. Under the agreement AGC issued an adjustable rate promissory note in
exchange for VALIC's holdings of AGC preferred stock, common stock, and
warrants. The principal amount of the note is due in 20 equal installment
payments commencing December 29, 1985 and concluding December 29, 2004.
Principal payments of $2,446 were received on December 29, 1996, December 29,
1995, and December 31, 1994. VALIC recognized $1,479, $1,729, and $1,810 of
interest income on the note during 1996, 1995, and 1994, respectively.
On February 14, 1994, VALIC acquired from AGL bonds of various issuers at
a cost of $11,268.
On February 15, 1994, VALIC acquired from AGL bonds of various issuers at
a cost of $9,900.
On September 30, 1995, VALIC received a capital contribution from AGL of
electronic data processing equipment with a book value of $1,575 and a related
tax liability of $214.
VALIC paid common stock dividends of $111,000, $31.05 per share; $95,000,
$26.57 per share, and $53,000, $14.83 per share, in 1996, 1995, and 1994,
respectively.
On May 15, 1996, VALIC sold SC Financial Corp Mortgage Notes with a book
value of $13,000 to American General Life Insurance Company of NY. Proceeds
from the sale totaled $13,033 with a profit of $33 recognized on the
transaction.
On December 30, 1996, VALIC received a capital contribution of $75,000
from AGL.
9
================================================================================
COMMITMENTS AND CONTINGENCIES
================================================================================
VALIC is a defendant in various lawsuits arising in the normal course of
business. VALIC believes it has valid defenses in these lawsuits and is
defending the cases vigorously. VALIC also believes that the total amounts that
would ultimately have to be paid arising from these lawsuits would have no
material effect on its consolidated financial position.
All 50 states have laws requiring solvent life insurance companies to pay
assessments to state guaranty associations to protect the interests of
policyholders of insolvent life insurance companies. State guaranty fund
expense included in operating costs and expenses was $2,678, $18,961, and
$6,300, for the years ended December 31, 1996, 1995, and 1994, respectively.
The accrued liability for anticipated assessments was $13,661, $20,249, and
$10,214, at December 31, 1996, 1995, and 1994, respectively. The 1996 liability
was estimated by VALIC using the latest information available from the National
Organization of Life and Health Insurance Guaranty Associations. Although the
amount accrued represents VALIC's best estimate of its liability, this estimate
may change in the future. Additionally, changes in state laws could decrease
the amount recoverable against future premium taxes.
10
================================================================================
EMPLOYEE BENEFIT PLANS
================================================================================
10.1 PENSION PLANS
VALIC participates in several employee benefit plans which together cover
substantially all of its employees. One of these plans is a defined benefit
plan. Pension benefits under this plan are based on the participant's average
monthly compensation and length of credited service. VALIC's funding policy for
this plan is to contribute annually no more than the maximum amount that can be
deducted for federal income tax purposes.
12
<PAGE> 210
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
December 31, 1996
- --------------------------------------------------------------------------------
10.1 PENSION PLANS - (CONTINUED)
The components of pension expense and underlying assumptions for the
defined benefit plan were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost (benefits earned)
during period $ 917 $ 601 $ 759
Interest cost on projected
benefit obligation 843 635 551
Actual (return) loss on
plan assets (2,785) (1,249) 414
Amortization of unrecognized
net asset existing at date of
initial application (23) (72) (58)
Amortization of unrecognized
prior service cost 44 44 35
Deferral of net asset gain (loss) 2,210 749 (920)
------- ------- -------
Total pension expense $ 1,206 $ 708 $ 781
------- ------- -------
Weighted-average discount rate
on benefit obligation 7.50% 7.25% 8.50%
Rate of increase in
compensation levels 4.00% 4.00% 4.00%
Expected long-term rate of
return on plan assets 10.00% 10.00% 10.00%
------- ------- -------
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheet at December 31, 1996 and 1995 for VALIC's
defined benefit pension plan:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 8,265 $ 6,983
Nonvested 1,251 1,127
-------- --------
Accumulated benefit obligation 9,516 8,110
Effect of increase in compensation levels 2,474 2,219
-------- --------
Projected benefit obligation 11,990 10,329
Plan assets at fair value 9,120 6,406
-------- --------
Plan assets in excess of projected
benefit obligation (2,870) (3,923)
Unrecognized net loss 1,266 2,037
Unrecognized prior service cost 62 105
Unrecognized net obligation at
January 1, net of amortization -- (23)
-------- --------
Net pension liability $ (1,542) $ (1,804)
-------- --------
</TABLE>
Equity and fixed maturity securities were 60% and 35%, respectively, of
the plan's assets at the plan's most recent balance sheet dates. The remaining
plan assets consisted primarily of cash equivalents and investment-related
receivables.
10.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
VALIC, through American General Corporation, has life, medical,
supplemental major medical, and dental plans for certain retired employees and
agents. Most plans are contributory, with retiree contributions adjusted
annually to limit employer contributions to predetermined amounts. VALIC has
reserved the right to change or eliminate these benefits at any time.
The life plans are fully insured; the retiree and medical and dental plans
are unfunded and self-insured. Postretirement benefit expense in 1996, 1995,
and 1994 was $282, $228, and $281, respectively.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities at December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations
Retirees $ 21 $ 115
Fully eligible active plan participants 103 26
Other active plan participants 1,479 1,509
--------- ---------
Accumulated postretirement
benefit obligations 1,603 1,650
Unrecognized net loss (66) (393)
Net funding (17) --
--------- ---------
Accrued benefit cost $ 1,520 $ 1,257
--------- ---------
Discount rate on postretirement
benefit obligations 7.50% 7.25%
--------- ---------
</TABLE>
13
<PAGE> 211
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC Putnam Templeton Templeton
Intl Equities Global Growth Foreign International
Division 11 Division 28 Division 32 Division 20
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 163,147,476 $ 44,935,783 $ 144,075,396 $ 565,971,720
============= ============= ============= =============
Investment in shares of mutual funds at market $ 176,155,598 $ 50,342,186 $ 160,174,587 $ 766,222,047
Balance due (to) from VALIC general account (488,480) 205,893 573,530 (154,456)
------------- ------------- ------------- -------------
NET ASSETS $ 175,667,118 $ 50,548,079 $ 160,748,117 $ 766,067,591
============= ============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $ 175,485,084 $ 50,514,401 $ 160,712,728 $ 765,888,460
Reserves for annuity contracts on benefit 182,034 33,678 35,389 179,131
------------- ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES $ 175,667,118 $ 50,548,079 $ 160,748,117 $ 766,067,591
============= ============= ============= =============
<CAPTION>
AGSPC AGSPC Dreyfus
Science & Tech Small Cap Index Small Cap
Division 17 Division 14 Division 18
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 795,079,464 $ 161,552,583 $ 611,573,204
============= ============= =============
Investment in shares of mutual funds at market $ 974,095,885 $ 233,176,000 $ 870,903,272
Balance due (to) from VALIC general account (697,337) (197,241) 1,030,944
------------- ------------- -------------
NET ASSETS $ 973,398,548 $ 232,978,759 $ 871,934,216
============= ============= =============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial $ 973,013,199 $ 232,848,471 $ 871,701,925
withdrawals with right of reinvestment) 385,349 130,288 232,291
Reserves for annuity contracts on benefit ------------- ------------- -------------
TOTAL CONTRACT OWNER RESERVES $ 973,398,548 $ 232,978,759 $ 871,934,216
============= ============= =============
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Putnam New Putnam OTC & AGSPC AGSPC
Opportunities Emerging Growth Growth Midcap Index
Division 26 Division 27 Division 15 Division 4
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $117,427,467 $ 84,111,794 $659,128,262 $452,219,539
============ ============ ============ ============
Investment in shares of mutual funds at market $137,090,818 $ 94,627,899 $900,172,335 $717,943,544
Balance due (to) from VALIC general account 555,321 305,259 604,188 418,978
------------ ------------ ------------ ------------
NET ASSETS $137,646,139 $ 94,933,158 $900,776,523 $718,362,522
============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $137,641,826 $ 94,889,859 $900,352,458 $718,048,948
Reserves for annuity contracts on benefit 4,313 43,299 424,065 313,574
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES $137,646,139 $ 94,933,158 $900,776,523 $718,362,522
============ ============ ============ ============
<CAPTION>
American Century-
Twentieth Founders AGSPC
Century Ultra Growth Growth & Income
Division 31 Division 30 Division 16
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 83,569,149 $111,214,293 $175,744,650
============ ============ ============
Investment in shares of mutual funds at market $ 94,454,384 $127,561,942 $254,738,826
Balance due (to) from VALIC general account 392,876 605,725 218,407
------------ ------------ ------------
NET ASSETS $ 94,847,260 $128,167,667 $254,957,233
============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $ 94,816,768 $128,132,527 $254,890,284
Reserves for annuity contracts on benefit 30,492 35,140 66,949
------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES $ 94,847,260 $128,167,667 $254,957,233
============ ============ ============
</TABLE>
================================================================================
* For the period from July 1, 1996 to December 31, 1996
<TABLE>
<CAPTION>
AGSPC AGSPC Stock Index
Social Awareness
Division 12 Division 10A Division 10B Division 10C
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 162,518,260 $ 234,936,780 $ 19,533,938 $1,255,702,810
============== ============== ============== ==============
Investment in shares of mutual funds at market $ 210,841,325 $ 464,885,954 $ 37,204,840 $2,180,023,151
Balance due (to) from VALIC general account 294,202 (17,908) 6,297 548,158
-------------- -------------- -------------- --------------
NET ASSETS $ 211,135,527 $ 464,868,046 $ 37,211,137 $2,180,571,309
============== ============== ============== ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $ 211,106,875 $ 451,713,695 $ 35,380,471 $2,178,816,471
Reserves for annuity contracts on benefit 28,652 13,154,351 1,830,666 1,754,838
-------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER RESERVES $ 211,135,527 $ 464,868,046 $ 37,211,137 $2,180,571,309
============== ============== ============== ==============
<CAPTION>
Neuberger
AGSPC & Berman Scudder
Stock Index Guardian Trust Growth and Income
Division 10D Division 29 Division 21
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 26,218,789 $ 31,651,163 $ 85,660,749
============== ============== ==============
Investment in shares of mutual funds at market $ 50,207,848 $ 36,961,965 $ 98,436,225
Balance due (to) from VALIC general account 21,208 166,726 440,083
-------------- -------------- --------------
NET ASSETS $ 50,229,056 $ 37,128,691 $ 98,876,308
============== ============== ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $ 50,044,683 $ 37,112,417 $ 98,816,870
Reserves for annuity contracts on benefit 184,373 16,274 59,438
-------------- -------------- --------------
TOTAL CONTRACT OWNER RESERVES $ 50,229,056 $ 37,128,691 $ 98,876,308
============== ============== ==============
</TABLE>
<PAGE> 212
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
Vanguard Templeton AGSPC Vanguard
Windsor II Asset Allocation Timed Opportunity Wellington
Division 24 Division 19 Division 5 Division 25
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $183,317,010 $249,960,698 $152,866,536 $107,246,539
============ ============ ============ ============
Investment in shares of mutual funds at market $211,731,489 $318,069,202 $184,884,941 $116,808,980
Balance due (to) from VALIC general account 646,954 282,508 66,707 484,762
------------ ------------ ------------ ------------
NET ASSETS $212,378,443 $318,351,710 $184,951,648 $117,293,742
============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $212,313,164 $318,024,378 $184,862,421 $117,293,742
Reserves for annuity contracts on benefit 65,279 327,332 89,227 0
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES $212,378,443 $318,351,710 $184,951,648 $117,293,742
============ ============ ============ ============
<CAPTION>
AGSPC AGSPC Capital Conservation
Intl Gov't Bond
Division 13 Division 1 Division 7
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $181,522,415 $ 6,309,557 $ 52,791,148
============ ============ ============
Investment in shares of mutual funds at market $173,723,402 $ 6,333,870 $ 53,441,477
Balance due (to) from VALIC general account 692,486 8,422 17,840
------------ ------------ ------------
NET ASSETS $174,415,888 $ 6,342,292 $ 53,459,317
============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $174,393,218 $ 6,337,549 $ 53,459,317
Reserves for annuity contracts on benefit 22,670 4,743 0
------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES $174,415,888 $ 6,342,292 $ 53,459,317
============ ============ ============
</TABLE>
================================================================================
<TABLE>
<CAPTION>
AGSPC Vanguard LT Vanguard LT
Govt Securities Corporate U.S. Treasury
Division 8 Division 22 Division 23
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 83,575,679 $ 11,907,319 $ 14,160,586
============== ============== ==============
Investment in shares of mutual funds at market $ 83,616,623 $ 12,250,194 $ 14,543,088
Balance due (to) from VALIC general account 78,805 90,529 35,726
-------------- -------------- --------------
NET ASSETS $ 83,695,428 $ 12,340,723 $ 14,578,814
============== ============== ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $ 83,695,428 $ 12,340,723 $ 14,569,191
Reserves for annuity contracts on benefit 0 0 9,623
-------------- -------------- --------------
TOTAL CONTRACT OWNER RESERVES $ 83,695,428 $ 12,340,723 $ 14,578,814
============== ============== ==============
<CAPTION>
AGSPC Money Market
Division 2 Division 6 ALL DIVISIONS
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds at cost $ 4,371,751 $ 127,208,977 $7,161,211,484
============== ============== ==============
Investment in shares of mutual funds at market $ 4,371,751 $ 127,208,977 $9,943,204,625
Balance due (to) from VALIC general account 13,725 3,309,267 10,560,104
-------------- -------------- --------------
NET ASSETS $ 4,385,476 $ 130,518,244 $9,953,764,729
============== ============== ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial
withdrawals with right of reinvestment) $ 4,385,476 $ 130,500,509 $9,934,103,536
Reserves for annuity contracts on benefit 0 17,735 19,661,193
-------------- -------------- --------------
TOTAL CONTRACT OWNER RESERVES $ 4,385,476 $ 130,518,244 $9,953,764,729
============== ============== ==============
</TABLE>
<PAGE> 213
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY STATEMENTS OF OPERATIONS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC Putnam Templeton Templeton
Intl Equities Global Growth Foreign International
Division 11 Division 28 Division 32 Division 20
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,297,153 $ 0 $ 0 $ 15,319,152
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge 1,347,229 305,421 900,211 5,958,472
Reimbursement of expense 0 (60,947) (180,310) 0
------------ ------------ ------------ ------------
Total Expenses 1,347,229 244,474 719,901 5,958,472
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 949,924 (244,474) (719,901) 9,360,680
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 7,790,776 83,599 121,407 15,068,643
Capital gains distributions from mutual funds 0 0 0 6,157,699
Net unrealized appreciation (depreciation) of investments
during the period 8,421,275 5,910,957 14,977,401 100,191,562
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 16,212,051 5,994,556 15,098,808 121,417,904
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 17,161,975 $ 5,750,082 $ 14,378,907 $130,778,584
============ ============ ============ ============
<CAPTION>
AGSPC AGSPC Dreyfus
Science & Tech Small Cap Index Small Cap
Division 17 Division 14 Division 18
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 0 $ 1,723,296 $ 0
------------- ------------- -------------
EXPENSES:
Mortality and expense risk charge 6,004,947 1,447,693 6,732,760
Reimbursement of expense 0 0 0
------------- ------------- -------------
Total Expenses 6,004,947 1,447,693 6,732,760
------------- ------------- -------------
NET INVESTMENT INCOME (6,004,947) 275,603 (6,732,760)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 21,096,200 5,408,340 7,936,337
Capital gains distributions from mutual funds 0 0 0
Net unrealized appreciation (depreciation) of investments
during the period 119,443,167 41,027,032 156,128,877
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 140,539,367 46,435,372 164,065,214
------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 134,534,420 $ 46,710,975 $ 157,332,454
============= ============= =============
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Putnam New Putnam OTC & AGSPC AGSPC
Opportunities Emerging Growth Growth Midcap Index
Division 26 Division 27 Division 15 Division 4
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 0 $ 0 $ 0 $ 5,243,431
------------- ------------- ------------- -------------
EXPENSES:
Mortality and expense risk charge 843,479 603,857 5,562,294 4,591,589
Reimbursement of expense (168,468) (120,810) 0 0
------------- ------------- ------------- -------------
Total Expenses 675,011 483,047 5,562,294 4,591,589
------------- ------------- ------------- -------------
NET INVESTMENT INCOME (675,011) (483,047) (5,562,294) 651,842
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold (10,792) (110,552) 3,972,156 14,914,214
Capital gains distributions from mutual funds 0 0 0 0
Net unrealized appreciation (depreciation) of investments
during the period 21,283,130 15,136,698 143,448,254 149,615,564
------------- ------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 21,272,338 15,026,146 147,420,410 164,529,778
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 20,597,327 $ 14,543,099 $ 141,858,116 $ 165,181,620
============= ============= ============= =============
</TABLE>
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY STATEMENTS OF OPERATIONS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
American Century-
Twentieth Founders AGSPC
Century Ultra Growth Growth & Income
Division 31 Division 30 Division 16
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 0 $ 0 $ 649,040
------------- ------------- -------------
EXPENSES:
Mortality and expense risk charge 464,348 668,996 1,560,352
Reimbursement of expense (73,167) (133,325) 0
------------- ------------- -------------
Total Expenses 391,181 535,671 1,560,352
------------- ------------- -------------
NET INVESTMENT INCOME (391,181) (535,671) (911,312)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 15,154 15,966 1,752,029
Capital gains distributions from mutual funds 0 0 0
Net unrealized appreciation (depreciation) of investments
during the period 11,545,142 18,045,189 50,908,607
------------- ------------- -------------
Net realized and unrealized gain (loss) on investments 11,560,296 18,061,155 52,660,636
------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 11,169,115 $ 17,525,484 $ 51,749,324
============= ============= =============
</TABLE>
<PAGE> 214
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC
Social Awareness AGSPC Stock Index
Division 12 Division 10A Division 10B Division 10C
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,310,620 $ 4,821,969 $ 386,718 $ 21,275,333
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge 1,146,203 3,176,459 143,482 13,842,833
Reimbursement of expense 0 0 (62,944) 0
------------ ------------ ------------ ------------
Total Expenses 1,146,203 3,176,459 80,538 13,842,833
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 164,417 1,645,510 306,180 7,432,500
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 743,895 16,071,403 1,354,337 12,319,102
Capital gains distributions from mutual funds 0 0 0 0
Net unrealized appreciation (depreciation) of investments
during the period 36,070,498 87,346,070 6,966,613 438,470,370
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 36,814,393 103,417,473 8,320,950 450,789,472
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 36,978,810 $105,062,983 $ 8,627,130 $458,221,972
============ ============ ============ ============
<CAPTION>
Neuberger
& Berman Scudder
Guardian Trust Growth and Income
Division 10D Division 29 Division 21
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 531,172 $ 40,763 $ 645,238
------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge 349,003 198,461 490,831
Reimbursement of expense 0 (39,614) (49,597)
------------ ------------ ------------
Total Expenses 349,003 158,847 441,234
------------ ------------ ------------
NET INVESTMENT INCOME 182,169 (118,084) 204,004
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 2,379,149 228,848 65,935
Capital gains distributions from mutual funds 0 0 543,650
Net unrealized appreciation (depreciation) of investments
during the period 9,088,419 4,962,351 12,690,758
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 11,467,568 5,191,199 13,300,343
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 11,649,737 $ 5,073,115 $ 13,504,347
============ ============ ============
</TABLE>
================================================================================
<TABLE>
Vanguard Templeton AGSPC Vanguard
Windsor II Asset Allocation Timed Opportunity Wellington
Division 24 Division 19 Division 5 Division 25
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,030,983 $ 6,145,468 $ 4,168,255 $ 1,617,182
------------ ------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge 1,126,027 2,331,353 1,334,745 620,005
Reimbursement of expense 0 0 0 0
------------ ------------ ------------ ------------
Total Expenses 1,126,027 2,331,353 1,334,745 620,005
------------ ------------ ------------ ------------
NET INVESTMENT INCOME (95,044) 3,814,115 2,833,510 997,177
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 186,995 541,192 4,019,249 493,479
Capital gains distributions from mutual funds 0 11,661,872 0 0
Net unrealized appreciation (depreciation) of investments
during the period 28,631,847 37,058,501 23,542,118 10,006,513
------------ ------------ ------------ ------------
Net realized and unrealized gain (loss) on investments 28,818,842 49,261,565 27,561,367 10,499,992
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 28,723,798 $ 53,075,680 $ 30,394,877 $ 11,497,169
============ ============ ============ ============
</TABLE>
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC Capital Conservation
Intl Gov't Bond
Division 13 Division 1 Division 7
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 5,099,994 $ 305,956 $ 2,566,171
------------ ------------ ------------
EXPENSES:
Mortality and expense risk charge 1,307,030 47,780 400,429
Reimbursement of expense 0 0 0
------------ ------------ ------------
Total Expenses 1,307,030 47,780 400,429
------------ ------------ ------------
NET INVESTMENT INCOME 3,792,964 258,176 2,165,742
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold (3,037,867) 14,217 (645,851)
Capital gains distributions from mutual funds 0 0 0
Net unrealized appreciation (depreciation) of investments
during the period (8,050,431) 85,843 1,479,823
------------ ------------ ------------
Net realized and unrealized gain (loss) on investments (11,088,298) 100,060 833,972
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ($ 7,295,334) $ 358,236 $ 2,999,714
=========== ============ ============
</TABLE>
<PAGE> 215
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF OPERATIONS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC Vanguard LT Vanguard LT
Govt Securities Corporate U.S. Treasury
Division 8 Division 22 Division 23
--------------- --------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 3,819,307 $ 356,906 $ 419,638
--------------- --------------- ---------------
EXPENSES:
Mortality and expense risk charge 630,670 65,162 81,083
Reimbursement of expense 0 0 0
--------------- --------------- ---------------
Total Expenses 630,670 65,162 81,083
--------------- --------------- ---------------
NET INVESTMENT INCOME 3,188,637 291,744 338,555
--------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold (762,339) 24,351 28,877
Capital gains distributions from mutual funds 0 5,835 0
Net unrealized appreciation (depreciation) of investments
during the period 1,551,459 354,281 348,847
--------------- --------------- ---------------
Net realized and unrealized gain (loss) on investments 789,120 384,467 377,724
--------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 3,977,757 $ 676,211 $ 716,279
=============== =============== ===============
<CAPTION>
AGSPC Money Market
Division 2 Division 6 ALL DIVISIONS
--------------- --------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 177,938 $ 4,802,308 $ 84,753,991
--------------- --------------- ---------------
EXPENSES:
Mortality and expense risk charge 35,587 957,249 65,276,040
Reimbursement of expense 0 0 (889,182)
--------------- --------------- ---------------
Total Expenses 35,587 957,249 64,386,858
--------------- --------------- ---------------
NET INVESTMENT INCOME 142,351 3,845,059 20,367,133
--------------- --------------- ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments sold 0 0 112,078,449
Capital gains distributions from mutual funds 0 0 18,369,056
Net unrealized appreciation (depreciation) of investments
during the period 0 0 1,546,686,735
--------------- --------------- ---------------
Net realized and unrealized gain (loss) on investments 0 0 1,677,134,240
--------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 142,351 $ 3,845,059 $ 1,697,501,373
=============== =============== ===============
</TABLE>
<PAGE> 216
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC Putnam
Intl Equities Global Growth
------------------------------ -------------------------------
Division 11 Division 28
------------------------------ -------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 949,924 $ 1,591,421 ($ 244,474) $ 354,551
Net realized gain (loss) on investments sold 7,790,776 10,405,298 83,599 1,237
Capital gains distributions from mutual funds 0 6,021,502 0 765,977
Net unrealized appreciation (depreciation) of
investments during the period 8,421,275 (6,663,813) 5,910,957 (504,554)
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 17,161,975 11,354,408 5,750,082 617,211
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 16,949,392 34,022,917 12,398,557 3,174,282
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (6,427,455) (8,616,063) (455,914) (15,952)
Annuity benefit payments (8,093) (13,432) (1,289) 0
Amounts transferred (to) from VALIC general account (43,235,229) (45,208,742) 15,247,585 13,833,517
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions (32,721,385) (19,815,320) 27,188,939 16,991,847
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (15,559,410) (8,460,912) 32,939,021 17,609,058
NET ASSETS:
Beginning of period 191,226,528 199,687,440 17,609,058 0
------------- ------------- ------------- -------------
End of period $ 175,667,118 $ 191,226,528 $ 50,548,079 $ 17,609,058
============= ============= ============= =============
Accumulation units end of period 130,374,667 156,226,314 40,083,255 16,648,600
============= ============= ============= =============
Accumulation unit value $ 1.346006 $ 1.222906 $ 1.260237 $ 1.05769
============= ============= ============= =============
<CAPTION>
Templeton Templeton
Foreign International
------------------------------- -------------------------------
Division 32 Division 20
------------------------------- -------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96* 09/30/97 12/31/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (719,901) $ 482,633 $ 9,360,680 ($ 394,601)
Net realized gain (loss) on investments sold 121,407 125 15,068,643 3,551,468
Capital gains distributions from mutual funds 0 285,587 6,157,699 1,324,253
Net unrealized appreciation (depreciation) of
investments during the period 14,977,401 1,121,790 100,191,562 78,888,709
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 14,378,907 1,890,135 130,778,584 83,369,829
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 42,973,984 9,386,263 95,037,013 121,376,573
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (1,138,101) (122,577) (15,949,343) (9,699,818)
Annuity benefit payments (739) 0 (4,920) (3,367)
Amounts transferred (to) from VALIC general account 65,078,993 28,301,252 26,182,446 84,599,243
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 106,914,137 37,564,938 105,265,196 196,272,631
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 121,293,044 39,455,073 236,043,780 279,642,460
NET ASSETS:
Beginning of period 39,455,073 0 530,023,811 250,381,351
------------- ------------- ------------- -------------
End of period $ 160,748,117 $ 39,455,073 $ 766,067,591 $ 530,023,811
============= ============= ============= =============
Accumulation units end of period 129,505,001 36,671,828 448,878,408 378,581,949
============= ============= ============= =============
Accumulation unit value $ 1.240977 $ 1.075896 $ 1.706227 $ 1.399702
============= ============= ============= =============
</TABLE>
================================================================================
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
AGSPC AGSPC
Science And Technology Small Cap Index
--------------------------------------------------------------------
Division 17 Division 14
--------------------------------------------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ($ 6,004,947) ($ 5,521,307) $ 275,603 $ 637,395
Net realized gain (loss) on investments sold 21,096,200 20,659,560 5,408,340 4,544,601
Capital gains distributions from mutual funds 0 32,117,202 0 11,216,991
Net unrealized appreciation (depreciation) of
investments during the period 119,443,167 15,569,750 41,027,032 7,711,563
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 134,534,420 62,825,205 46,710,975 24,110,550
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 148,616,177 181,422,903 19,162,526 31,004,229
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (21,143,107) (14,164,178) (6,155,476) (7,478,000)
Annuity benefit payments (13,857) (40,073) (4,504) (563)
Amounts transferred (to) from VALIC general account 440,751 105,706,951 (11,213,084) (15,148,966)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 127,899,964 272,925,603 1,789,462 8,376,700
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 262,434,384 335,750,808 48,500,437 32,487,250
NET ASSETS:
Beginning of period 710,964,164 375,213,356 184,478,322 151,991,072
------------- ------------- ------------- -------------
End of period $ 973,398,548 $ 710,964,164 $ 232,978,759 $ 184,478,322
============= ============= ============= =============
Accumulation units end of period 371,440,329 315,809,646 103,827,795 103,320,842
============= ============= ============= =============
Accumulation unit value $ 2.619568 $ 2.250471 $ 2.242641 $ 1.785442
============= ============= ============= =============
<CAPTION>
Putnam New
Dreyfus Small Cap Opportunities
------------------------------- -------------------------------
Division 18 Division 26
------------------------------- -------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ($ 6,732,760) ($ 5,324,689) ($ 675,011) ($ 91,811)
Net realized gain (loss) on investments sold 7,936,337 1,994,033 (10,792) 9,737
Capital gains distributions from mutual funds 0 19,221,026 0 333,297
Net unrealized appreciation (depreciation) of
investments during the period 156,128,877 56,124,110 21,283,130 (1,619,779)
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 157,332,454 72,014,480 20,597,327 (1,368,556)
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 114,724,252 168,538,535 35,816,382 11,510,093
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (19,393,946) (13,795,343) (1,567,716) (87,148)
Annuity benefit payments (10,058) (8,413) 0 0
Amounts transferred (to) from VALIC general account (39,104,545) 74,732,906 32,577,167 40,168,590
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 56,215,703 229,467,685 66,825,833 51,591,535
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 213,548,157 301,482,165 87,423,160 50,222,979
NET ASSETS:
Beginning of period 658,386,059 356,903,894 50,222,979 0
------------- ------------- ------------- -------------
End of period $ 871,934,216 $ 658,386,059 $ 137,646,139 $ 50,222,979
============= ============= ============= =============
Accumulation units end of period 464,085,458 428,883,250 119,847,368 53,001,699
============= ============= ============= =============
Accumulation unit value $ 1.878322 $ 1.534694 $ 1.148476 $ 0.947573
============= ============= ============= =============
</TABLE>
<PAGE> 217
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
================================================================================
<TABLE>
<CAPTION>
Putnam OTC AGSPC
Emerging Growth Growth
------------------------------- -------------------------------
Division 27 Division 15
------------------------------- -------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ($ 483,047) ($ 87,360) ($ 5,562,294) ($ 2,278,501)
Net realized gain (loss) on investments sold (110,552) 9,014 3,972,156 130,878
Capital gains distributions from mutual funds 0 2,846,114 0 11,891,551
Net unrealized appreciation (depreciation) of
investments during the period 15,136,698 (4,620,592) 143,448,254 58,161,783
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 14,543,099 (1,852,824) 141,858,116 67,905,711
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 24,532,202 11,571,920 141,284,981 164,255,730
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (1,149,641) (77,988) (17,790,149) (10,378,550)
Annuity benefit payments (1,255) 0 (13,625) (38,688)
Amounts transferred (to) from VALIC general account 13,241,798 34,125,847 321,593 172,227,639
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 36,623,104 45,619,779 123,802,800 326,066,131
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 51,166,203 43,766,955 265,660,916 393,971,842
NET ASSETS:
Beginning of period 43,766,955 0 635,115,607 241,143,765
------------- ------------- ------------- -------------
End of period $ 94,933,158 $ 43,766,955 $ 900,776,523 $ 635,115,607
============= ============= ============= =============
Accumulation units end of period 90,702,228 48,902,828 435,426,799 366,272,509
============= ============= ============= =============
Accumulation unit value $ 1.046169 $ 0.894978 $ 2.067747 $ 1.733324
============= ============= ============= =============
<CAPTION>
AGSPC Twentieth
Midcap Index Century Ultra
------------------------------ --------------------------------
Division 4 Division 31
------------------------------ --------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96*
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 651,842 $ 1,513,296 ($ 391,181) ($ 37,059)
Net realized gain (loss) on investments sold 14,914,214 17,436,698 15,154 18,993
Capital gains distributions from mutual funds 0 33,690,174 0 884,238
Net unrealized appreciation (depreciation) of
investments during the period 149,615,564 33,029,566 11,545,142 (659,907)
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 165,181,620 85,669,734 11,169,115 206,265
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 48,730,161 76,583,041 27,155,105 4,513,492
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (18,942,838) (21,727,656) (816,262) (29,941)
Annuity benefit payments (15,104) (19,036) (635) 0
Amounts transferred (to) from VALIC general account (42,302,710) (55,201,966) 40,022,279 12,627,842
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions (12,530,491) (365,617) 66,360,487 17,111,393
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 152,651,129 85,304,117 77,529,602 17,317,658
NET ASSETS:
Beginning of period 565,711,393 480,407,276 17,317,658 0
------------- ------------- ------------- -------------
End of period $ 718,362,522 $ 565,711,393 $ 94,847,260 $ 17,317,658
============= ============= ============= =============
Accumulation units end of period 169,126,755 172,816,978 72,344,807 16,654,076
============= ============= ============= =============
Accumulation unit value $ 4.245626 $ 3.272588 $ 1.310623 $ 1.039845
============= ============= ============= =============
</TABLE>
================================================================================
<TABLE>
<CAPTION>
Founders AGSPC
Growth Growth and Income
------------------------------ -------------------------------
Division 30 Division 16
------------------------------ -------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96* 09/30/97 12/31/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ($ 535,671) ($ 28,065) ($ 911,312) ($ 402,222)
Net realized gain (loss) on investments sold 15,966 0 1,752,029 483,596
Capital gains distributions from mutual funds 0 2,106,129 0 3,131,642
Net unrealized appreciation (depreciation) of
investments during the period 18,045,189 (1,697,540) 50,908,607 19,205,904
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 17,525,484 380,524 51,749,324 22,418,920
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 34,349,253 8,595,522 33,663,270 41,180,652
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (1,110,908) (36,494) (6,520,974) (2,962,157)
Annuity benefit payments 0 0 (2,036) (1,598)
Amounts transferred (to) from VALIC general account 45,285,362 23,178,924 4,539,444 43,756,812
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 78,523,707 31,737,952 31,679,704 81,973,709
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 96,049,191 32,118,476 83,429,028 104,392,629
NET ASSETS:
Beginning of period 32,118,476 0 171,528,205 67,135,576
------------- ------------- ------------- -------------
End of period $ 128,167,667 $ 32,118,476 $ 254,957,233 $ 171,528,205
============= ============= ============= =============
Accumulation units end of period 97,415,997 31,197,464 127,030,641 108,341,635
============= ============= ============= =============
Accumulation unit value $ 1.315313 $ 1.029522 $ 2.006526 $ 1.583056
============= ============= ============= =============
<CAPTION>
AGSPC AGSPC
Social Awareness Stock Index
------------------------------- -------------------------------
Division 12 Division 10A
------------------------------- -------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 164,417 $ 546,469 $ 1,645,510 $ 3,186,584
Net realized gain (loss) on investments sold 743,895 778,115 16,071,403 12,767,086
Capital gains distributions from mutual funds 0 10,715,745 0 2,739,498
Net unrealized appreciation (depreciation) of
investments during the period 36,070,498 4,483,540 87,346,070 51,675,655
------------- ------------- ------------- -------------
Increase in net assets resulting from operations 36,978,810 16,523,869 105,062,983 70,368,823
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 30,447,841 18,543,307 2,926,507 4,265,439
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (3,496,754) (3,798,307) (16,264,678) (22,309,652)
Annuity benefit payments 0 0 (1,284,740) (1,401,028)
Amounts transferred (to) from VALIC general account 42,289,601 13,547,350 (4,221,055) (13,443,730)
------------- ------------- ------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 69,240,688 28,292,350 (18,843,966) (32,888,971)
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 106,219,498 44,816,219 86,219,017 37,479,852
NET ASSETS:
Beginning of period 104,916,029 60,099,810 378,649,029 341,169,177
------------- ------------- ------------- -------------
End of period $ 211,135,527 $ 104,916,029 $ 464,868,046 $ 378,649,029
============= ============= ============= =============
Accumulation units end of period 72,986,447 46,574,016 26,213,972 27,379,389
============= ============= ============= =============
Accumulation unit value $ 2.892412 $ 2.252673 $ 17.231791 $ 13.413891
============= ============= ============= =============
</TABLE>
<PAGE> 218
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY
SEPARATE ACCOUNT A
================================================================================
<TABLE>
<CAPTION>
AGSPC Stock Index
----------------------------------- ----------------------------------
Division 10B Division 10C
----------------------------------- ----------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 306,180 $ 462,074 $ 7,432,500 $ 11,741,408
Net realized gain (loss) on investments sold 1,354,337 2,085,848 12,319,102 10,129,542
Capital gains distributions from mutual funds 0 222,372 0 11,061,404
Net unrealized appreciation (depreciation) of
investments during the period 6,966,613 3,182,195 438,470,370 222,475,966
--------------- --------------- --------------- ---------------
Increase in net assets resulting from operations 8,627,130 5,952,489 458,221,972 255,408,320
--------------- --------------- --------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments 196,060 501,306 192,850,190 210,185,191
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (1,523,937) (2,364,484) (52,419,363) (49,624,470)
Annuity benefit payments (210,752) (250,350) (86,663) (61,625)
Amounts transferred (to) from VALIC general account (603,288) (1,406,730) 51,658,803 47,055,243
--------------- --------------- --------------- ---------------
Increase (decrease) in net assets resulting from (2,141,917) (3,520,258) 192,002,967 207,554,339
principal transactions
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 6,485,213 2,432,231 650,224,939 462,962,659
NET ASSETS:
Beginning of period 30,725,924 28,293,693 1,530,346,370 1,067,383,711
--------------- --------------- --------------- ---------------
End of period $ 37,211,137 $ 30,725,924 $ 2,180,571,309 $ 1,530,346,370
=============== =============== =============== ===============
Accumulation units end of period 1,300,638 1,380,401 595,543,590 536,806,965
=============== =============== =============== ===============
Accumulation unit value $ 27.202387 $ 21.070956 $ 3.658534 $ 2.848437
=============== =============== =============== ===============
<CAPTION>
Neuberger
& Berman
Guardian Trust
Division 10D Division 29
---------------------------------- ----------------------------------
9 months ended Year ended 9 months ended Year ended
09/30/97 12/31/96 09/30/97 12/31/96*
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income $ 182,169 $ 363,909 ($ 118,084) $ 15,594
Net realized gain (loss) on investments sold 2,379,149 2,391,364 228,848 10,864
Capital gains distributions from mutual funds 0 307,213 0 128,127
Net unrealized appreciation (depreciation) of
investments during the period 9,088,419 4,964,983 4,962,351 348,451
--------------- --------------- --------------- ---------------
Increase in net assets resulting from operations 11,649,737 8,027,469 5,073,115 503,036
--------------- --------------- --------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments 608,146 1,004,698 9,093,651 2,108,685
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (1,769,250) (2,219,367) (308,276) (21,439)
Annuity benefit payments (9,914) (10,433) 0 0
Amounts transferred (to) from VALIC general account (2,720,790) (5,536,446) 14,066,895 6,613,024
--------------- --------------- --------------- ---------------
Increase (decrease) in net assets resulting from
principal transactions (3,891,808) (6,761,548) 22,852,270 8,700,270
--------------- --------------- --------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 7,757,929 1,265,921 27,925,385 9,203,306
NET ASSETS:
Beginning of period 42,471,127 41,205,206 9,203,306 0
--------------- --------------- --------------- ---------------
End of period $ 50,229,056 $ 42,471,127 $ 37,128,691 $ 9,203,306
=============== =============== =============== ===============
Accumulation units end of period 7,717,412 8,381,704 26,165,614 8,211,592
=============== =============== =============== ===============
Accumulation unit value $ 6.484646 $ 5.049088 $ 1.418366 $ 1.12077
=============== =============== =============== ===============
<CAPTION>
Scudder
Growth and Income
--------------------------------
Division 21
--------------------------------
9 months ended Year ended
09/30/97 12/31/96*
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 204,004 $ 120,254
Net realized gain (loss) on investments sold 65,935 22,419
Capital gains distributions from mutual funds 543,650 607,596
Net unrealized appreciation (depreciation) of investments
during the period 12,690,758 84,718
------------- -------------
Increase in net assets resulting from operations 13,504,347 834,987
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 24,034,616 4,643,308
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (838,124) (23,004)
Annuity benefit payments (1,354) 0
Amounts transferred (to) from VALIC general account 43,753,338 12,968,194
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 66,948,476 17,588,498
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 80,452,823 18,423,485
NET ASSETS:
Beginning of period 18,423,485 0
------------- -------------
End of period $ 98,876,308 $ 18,423,485
============= =============
Accumulation units end of period 69,057,119 16,524,046
============= =============
Accumulation unit value $ 1.430944 $ 1.11495
============= =============
<CAPTION>
Vanguard
Windsor II
--------------------------------
Division 24
--------------------------------
9 months ended Year ended
09/30/97 12/31/96*
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income ($ 95,044) $ 488,057
Net realized gain (loss) on investments sold 186,995 11,774
Capital gains distributions from mutual funds 0 1,554,790
Net unrealized appreciation (depreciation) of investments
during the period 28,631,847 (217,368)
------------- -------------
Increase in net assets resulting from operations 28,723,798 1,837,253
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 57,185,015 10,178,409
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (1,731,303) (103,527)
Annuity benefit payments (803) 0
Amounts transferred (to) from VALIC general account 86,401,958 29,887,643
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 141,854,867 39,962,525
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 170,578,665 41,799,778
NET ASSETS:
Beginning of period 41,799,778 0
------------- -------------
End of period $ 212,378,443 $ 41,799,778
============= =============
Accumulation units end of period 150,427,778 37,292,761
============= =============
Accumulation unit value $ 1.411396 $ 1.120855
============= =============
<CAPTION>
Templeton
Asset Allocation
--------------------------------
Division 19
--------------------------------
9 months ended Year ended
09/30/97 12/31/96
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,814,115 $ 1,458,222
Net realized gain (loss) on investments sold 541,192 430,651
Capital gains distributions from mutual funds 11,661,872 2,566,073
Net unrealized appreciation (depreciation) of investments
during the period 37,058,501 19,843,521
------------- -------------
Increase in net assets resulting from operations 53,075,680 24,298,467
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 44,919,155 46,026,342
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (7,228,223) (3,839,217)
Annuity benefit payments (14,240) (39,584)
Amounts transferred (to) from VALIC general account 32,998,451 33,529,527
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 70,675,143 75,677,068
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 123,750,823 99,975,535
NET ASSETS:
Beginning of period 194,600,887 94,625,352
------------- -------------
End of period $ 318,351,710 $ 194,600,887
============= =============
Accumulation units end of period 182,389,613 137,384,670
============= =============
Accumulation unit value $ 1.743654 $ 1.414844
============= =============
<CAPTION>
AGSPC
Timed Opportunity
--------------------------------
Division 5
--------------------------------
9 months ended Year ended
09/30/97 12/31/96
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,833,510 $ 4,134,407
Net realized gain (loss) on investments sold 4,019,249 7,668,485
Capital gains distributions from mutual funds 0 18,741,770
Net unrealized appreciation (depreciation) of investments
during the period 23,542,118 (13,565,417)
------------- -------------
Increase in net assets resulting from operations 30,394,877 16,979,245
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 8,599,190 15,126,160
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (7,913,613) (11,037,733)
Annuity benefit payments (6,120) (7,329)
Amounts transferred (to) from VALIC general account (19,352,161) (30,784,573)
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions (18,672,704) (26,703,475)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 11,722,173 (9,724,230)
NET ASSETS:
Beginning of period 173,229,475 182,953,705
------------- -------------
End of period $ 184,951,648 $ 173,229,475
============= =============
Accumulation units end of period 58,795,133 65,292,617
============= =============
Accumulation unit value $ 3.144179 $ 2.651899
============= =============
</TABLE>
<PAGE> 219
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
Vanguard
Wellington
--------------------------------
Division 25
--------------------------------
9 months ended Year ended
09/30/97 12/31/96
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 997,177 $ 326,600
Net realized gain (loss) on investments sold 493,479 0
Capital gains distributions from mutual funds 0 818,129
Net unrealized appreciation (depreciation) of investments
during the period 10,006,513 (444,072)
------------- -------------
Increase in net assets resulting from operations 11,497,169 700,657
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 36,323,591 7,042,246
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (1,519,929) (12,075)
Annuity benefit payments 0 0
Amounts transferred (to) from VALIC general account 45,803,393 17,458,690
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 80,607,055 24,488,861
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 92,104,224 25,189,518
NET ASSETS:
Beginning of period 25,189,518 0
------------- -------------
End of period $ 117,293,742 $ 25,189,518
============= =============
Accumulation units end of period 89,732,633 22,866,634
============= =============
Accumulation unit value $ 1.307147 $ 1.101584
============= =============
<CAPTION>
AGSPC
Int'l Govt Bond
--------------------------------
Division 13
--------------------------------
9 months ended Year ended
09/30/97 12/31/96
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,792,964 $ 6,561,676
Net realized gain (loss) on investments sold (3,037,867) 1,815,703
Capital gains distributions from mutual funds 0 295,588
Net unrealized appreciation (depreciation) of investments
during the period (8,050,431) (2,362,017)
------------- -------------
Increase in net assets resulting from operations (7,295,334) 6,310,950
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 32,313,659 48,300,297
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (4,819,858) (4,925,561)
Annuity benefit payments (87) (33)
Amounts transferred (to) from VALIC general account (23,954,663) 16,174,338
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions 3,539,051 59,549,041
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (3,756,283) 65,859,991
NET ASSETS:
Beginning of period 178,172,171 112,312,180
------------- -------------
End of period $ 174,415,888 $ 178,172,171
============= =============
Accumulation units end of period 114,947,983 112,601,593
============= =============
Accumulation unit value $ 1.517149 $ 1.58223
============= =============
<CAPTION>
AGSPC
Cap Conservation
--------------------------------
Division 1
--------------------------------
9 months ended Year ended
09/30/97 12/31/96
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 258,176 $ 385,044
Net realized gain (loss) on investments sold 14,217 60,355
Capital gains distributions from mutual funds 0 0
Net unrealized appreciation (depreciation) of investments
during the period 85,843 (428,426)
------------- -------------
Increase in net assets resulting from operations 358,236 16,973
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 229,793 280,092
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (316,258) (624,478)
Annuity benefit payments (391) (512)
Amounts transferred (to) from VALIC general account (430,958) (953,654)
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions (517,814) (1,298,552)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (159,578) (1,281,579)
NET ASSETS:
Beginning of period 6,501,870 7,783,449
------------- -------------
End of period $ 6,342,292 $ 6,501,870
============= =============
Accumulation units end of period 1,836,348 1,991,536
============= =============
Accumulation unit value $ 3.45117 $ 3.262402
============= =============
<CAPTION>
AGSPC
Cap Conservation
--------------------------------
Division 7
--------------------------------
9 months ended Year ended
09/30/97 12/31/96
--------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,165,742 $ 3,053,956
Net realized gain (loss) on investments sold (645,851) (425,696)
Capital gains distributions from mutual funds 0 0
Net unrealized appreciation (depreciation) of investments
during the period 1,479,823 (2,170,354)
------------- -------------
Increase in net assets resulting from operations 2,999,714 457,906
------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments 5,515,872 10,990,401
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (2,323,718) (2,515,394)
Annuity benefit payments 0 0
Amounts transferred (to) from VALIC general account (8,022,030) (7,231,500)
------------- -------------
Increase (decrease) in net assets resulting from
principal transactions (4,829,876) 1,243,507
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,830,162) 1,701,413
NET ASSETS:
Beginning of period 55,289,479 53,588,066
------------- -------------
End of period $ 53,459,317 $ 55,289,479
============= =============
Accumulation units end of period 27,677,889 30,286,494
============= =============
Accumulation unit value $ 1.931481 $ 1.825549
============= =============
</TABLE>
THE VARIABLE ANNUITY LIFE
INSURANCE COMPANY STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
SEPARATE ACCOUNT A For the period ended September 30, 1997
===============================================================================
<TABLE>
<CAPTION>
AGSPC
Govt Securities
------------------------------
Division 8
------------------------------
9 months ended Year ended
09/30/97 12/31/96
------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 3,188,637 $ 4,076,937
Net realized gain (loss) on investments sold (762,339) (378,294)
Capital gains distributions from mutual funds 0 0
Net unrealized appreciation (depreciation) of investments
during the period 1,551,459 (2,658,037)
------------ ------------
Increase in net assets resulting from operations 3,977,757 1,040,606
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments 9,511,285 18,451,360
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (2,968,635) (3,354,710)
Annuity benefit payments 0 0
Amounts transferred (to) from VALIC general account (12,396,918) (2,269,092)
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions (5,854,268) 12,827,558
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,876,511) 13,868,164
NET ASSETS:
Beginning of period 85,571,939 71,703,775
------------ ------------
End of period $ 83,695,428 $ 85,571,939
============ ============
Accumulation units end of period 43,970,615 47,130,169
============ ============
Accumulation unit value $ 1.90344 $ 1.815651
============ ============
<CAPTION>
Vanguard LT
Corporate
------------------------------
Division 22
------------------------------
9 months ended Year ended
09/30/97 12/31/96*
------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 291,744 $ 36,167
Net realized gain (loss) on investments sold 24,351 2,260
Capital gains distributions from mutual funds 5,835 31,298
Net unrealized appreciation (depreciation) of investments
during the period 354,281 (11,407)
------------ ------------
Increase in net assets resulting from operations 676,211 58,318
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments 3,713,144 1,030,635
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (101,939) (3,212)
Annuity benefit payments 0 0
Amounts transferred (to) from VALIC general account 4,522,450 2,445,116
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions 8,133,655 3,472,539
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 8,809,866 3,530,857
NET ASSETS:
Beginning of period 3,530,857 0
------------ ------------
End of period $ 12,340,723 $ 3,530,857
============ ============
Accumulation units end of period 10,947,364 3,370,441
============ ============
Accumulation unit value $ 1.127278 $ 1.047595
============ ============
<CAPTION>
Vanguard LT
U.S. Treasury
------------------------------
Division 23
------------------------------
9 months ended Year ended
09/30/97 12/31/96
------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 338,555 $ 46,282
Net realized gain (loss) on investments sold 28,877 2,349
Capital gains distributions from mutual funds 0 0
Net unrealized appreciation (depreciation) of investments
during the period 348,847 33,654
------------ ------------
Increase in net assets resulting from operations 716,279 82,285
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments 4,434,836 1,117,289
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (181,361) (9,447)
Annuity benefit payments (43) 0
Amounts transferred (to) from VALIC general account 5,232,402 3,186,574
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions 9,485,834 4,294,416
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 10,202,113 4,376,701
NET ASSETS:
Beginning of period 4,376,701 0
------------ ------------
End of period $ 14,578,814 $ 4,376,701
============ ============
Accumulation units end of period 13,059,945 4,174,369
============ ============
Accumulation unit value $ 1.115563 $ 1.04847
============ ============
<CAPTION>
AGSPC Money Market
------------------------------
Division 2
------------------------------
9 months ended Year ended
09/30/97 12/31/96
------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 142,351 $ 216,537
Net realized gain (loss) on investments sold 0 0
Capital gains distributions from mutual funds 0 0
Net unrealized appreciation (depreciation) of investments
during the period 0 0
------------ ------------
Increase in net assets resulting from operations 142,351 216,537
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments 102,267 163,293
Surrenders of accumulation units by terminations, withdrawals,
and maintenance fees (215,031) (465,203)
Annuity benefit payments 0 0
Amounts transferred (to) from VALIC general account (523,612) (1,426,148)
------------ ------------
Increase (decrease) in net assets resulting from
principal transactions (636,376) (1,728,058)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (494,025) (1,511,521)
NET ASSETS:
Beginning of period 4,879,501 6,391,022
------------ ------------
End of period $ 4,385,476 $ 4,879,501
============ ============
Accumulation units end of period 1,868,848 2,142,534
============ ============
Accumulation unit value 2.34662 2.277444
============ ============
</TABLE>
<PAGE> 220
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- ORGANIZATION
Separate Account A (the 'Separate Account'), established by the Variable Annuity
Life Insurance Company ('VALIC') on April 18, 1979, is registered under the
Investment Company Act of 1940 as a unit investment trust. The Separate Account
is comprised of thirty-three subaccounts or 'divisions.' Each division, which
represents a variable investment vehicle available only through a VALIC annuity
contract, invests in one of the following mutual funds:
American General Series Portfolio Company ('AGSPC'):
AGSPC Stock Index Fund (Divisions 10A, B, C, and D)
AGSPC MidCap Index Fund (Division 4)
AGSPC Small Cap Index Fund (Division 14)
AGSPC International Equities Fund (Division 11)
AGSPC Growth Fund (Division 15)
AGSPC Growth & Income Fund (Division 16)
AGSPC Science & Technology Fund (Division 17)
AGSPC Social Awareness Fund (Division 12)
AGSPC Timed Opportunity Fund (Division 5)
AGSPC Capital Conservation Fund (Divisions 1 and 7)
AGSPC Government Securities Fund (Division 8)
AGSPC International Government Bond Fund (Division 13)
AGSPC Money Market Fund (Division 2 and 6)
Dreyfus Variable Investment Fund -
Dreyfus Small Cap Portfolio (Division 18)
Founders Growth Fund (Division 30)
Neuberger & Berman Guardian Trust (Division 29)
Putnam Global Growth Fund (Division 28)
Putnam New Opportunities Fund (Division 26)
Putnam OTC & Emerging Growth Fund (Division 27)
Scudder Growth and Income Fund (Division 21)
Templeton Foreign Fund (Division 32)
Templeton Variable Products Series Fund:
Templeton Asset Allocation Fund (Division 19)
Templeton International Fund (Division 20)
American Century - Twentieth Century
Ultra Fund (Division 31)
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio (Division 22)
Long-Term U.S. Treasury Portfolio (Division 23)
Vanguard/Wellington Fund (Division 25)
Vanguard/Windsor II (Division 24)
Divisions 21 through 32 commenced operations on July 1, 1996.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The assets of the Separate Account are segregated from VALIC's other
assets. The operations of the Separate Account are part of VALIC. The following
is a summary of significant accounting policies consistently followed by the
Separate Account in the preparation of its financial statements.
Investment Valuation. Investments in mutual funds (the 'Funds') are valued
at the net asset (market) value per share at the close of each business day as
reported by the Fund.
Investment Transactions. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded on
the ex-dividend date and reinvested upon receipt.
Investment Income. Dividend income from mutual funds is recorded on the
ex-dividend date and reinvested upon receipt.
Annuity Reserves. Net payments made by variable annuity contract owners are
accumulated based on the performance of the investments of the Separate Account
until the date the contract owners select to commence annuity payments. Reserves
for annuities on which benefits are currently payable are provided for based
upon estimated mortality and other assumptions, including provisions for the
risk of adverse deviation from assumptions, which were appropriate at the time
the contracts were issued. The 1983(a) Individual Mortality Table has been used
in the computation of annuity reserves for currently payable contracts.
Participants are able to elect assumed investment rates between 3.0% and 6.0%,as
regulated by the applicable state laws.
<PAGE> 221
SEPARATE ACCOUNT A
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC serves as investment adviser, transfer agent, and accounting services
agent to AGSPC.
The Separate Account is charged for mortality and expense risks assumed by
VALIC. The charge, based on the daily net assets of each division, is assessed
daily based on the following annual rates: for Division 10B, 0.85% on the first
$10,000,000, 0.425% on the next $90,000,000 and 0.21% on the excess over
$100,000,000; for Divisions 1, 2, 4, 5, 6, 7, 8, 10A, 10C, 10D, 11, 12, 13, 14,
15, 16 and 17, 1.00%; and for Divisions 18 through 32, 1.25%. Certain
unaffiliated mutual funds reimburse to VALIC a portion of the distribution or
administrative costs associated with offering their funds through a VALIC
annuity contract. VALIC, in turn reduces the separate account charge to that
division by the amount of the reimbursement. The expense reduction is credited
daily based on the following annual rates: for Divisions 26 through 30 and
Division 32, 0.25%; for Division 31, 0.20%.
Pursuant to the reorganization agreement entered in on April 17, 1987,
which transferred VALIC Separate Accounts One and Two into Separate Account A
Divisions 10A and 10B, respectively, expenses of each division (as defined to
include underlying mutual fund expenses) are limited to the following rates
based on average daily net assets: Division 10A, 1.4157% on the first
$359,065,787, 1.36% on the next $40,934,213, and 1.32% on the excess over
$400,000,000; Division 10B 0.6966% on the first $25,434,267, 0.5% on the next
$74,565,733, and 0.25% on the excess over $100,000,000 [Accordingly, during the
nine months ended September 30, 1997 and the year ended December 31, 1996, VALIC
reduced expenses of Division 10B by $62,944 and $73,695, respectively.]
A portion of the annual contract maintenance charge is assessed each
contract (except those relating to Divisions 10A and 10B) by VALIC on the last
day of the calendar quarter in which VALIC receives the first purchase payment,
and in quarterly installments thereafter during the accumulation period.
Maintenance charges assessed totaled $3,314,463 and $3,625,368 for the nine
months ended September 30, 1997, and the year ended December 31, 1996,
respectively.
VALIC received surrender charges of $1,980,418 and $1,998,356 for the nine
months ended September 30, 1997 and the year ended December 31, 1996,
respectively. In addition, VALIC received $76,330 and $11,846 for the year ended
December 31, 1996, in sales load on variable annuity purchase payments for
Divisions 10A and 10B, respectively. VALIC received $46,631 and $5,955 for the
nine months ended September 30, 1997, in sales load on variable annuity purchase
payments for Divisions 10A and 10B, respectively.
NOTE D -- FEDERAL INCOME TAXES
VALIC is taxed as a life insurance company under the Internal Revenue Code
and includes the operations of the Separate Account in determining its federal
income tax liability. Under current federal income tax law the investment income
and capital gains from sale of investments realized by the Separate Account are
not taxable. Therefore, no federal income tax provision has been made.
<PAGE> 222
ANNUAL REPORT
TO CONTRACT OWNERS
DECEMBER 31, 1996
SEPARATE
ACCOUNT A
[VALIC LOGO]
<PAGE> 223
================================================================================
CHAIRMAN'S LETTER SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
TO OUR PARTICIPANTS:
We are pleased to present the December 31, 1996 Annual Report to Contract
Owners for Separate Account A of the Variable Annuity Life Insurance Company. A
summary of the change in unit value for each fund and each product series
(Portfolio Director 1, Portfolio Director 2, Independence Plus, Group Unit
Purchase and Impact) appears on page two.
Economic conditions in 1996 continued the recent pattern of modest growth and
low inflation. Gross Domestic Product has been increasing at a 2.5% annual
rate, slightly above the level in 1995 and in line with expectations for 1997.
Inflation, as measured by the Consumer Price Index, has been reported at 3.3%
and is expected to remain at that level through 1997.
The equity markets provided a second year of exceptional returns. The S&P
500(R) recorded a total return of 22.97%. Smaller capitalization stocks returns
were lower but still very satisfactory. The Standard & Poor's MidCap 400 Index
returned 19.24% and the Russell 2000(R) Index produced 16.49%.
The bond market followed an elliptical pattern declining in the first seven
months and rising in the last four months. Yields on the long-term Treasury
bond rose from 6.0% at the beginning of the year to 7.2% in July and declined
to 6.6% at year end. Bond market returns were less than 3.5%, with coupon
returns offsetting a decline in market value.
VALIC's domestic indexed funds provided returns ranging from 15.57% to 21.53%.
Managed domestic equity funds' returns varied widely from 3.53% to 22.75%. A
large part of the variance was caused by the spread in returns as large
capitalization stocks, on balance, outperformed smaller capitalization issues.
In the Morningstar rankings, twelve of VALIC's equity funds were in the top
half of their categories. Of those, eight were in the top quartile.
If you have any questions about your contract or this report, we would be happy
to hear from you.
Respectfully,
/s/ STEPHEN D. BICKEL
Stephen D. Bickel, Chairman and CEO
The Variable Annuity Life Insurance Company
January 24, 1997
This report is not authorized for distribution as advertising or sales
literature. This report is published exclusively for the information of the
variable annuity contract owners of the Company in accordance with section 30
(d) of the Investment Company Act of 1940.
"S&P 500(R)" and "Standard & Poor's MidCap 400 Index" are trademarks of
Standard & Poor's Corporation (S&P). The Stock Index Fund and MidCap Index Fund
are not sponsored, endorsed, sold or promoted by S&P and S&P makes no
representation regarding the advisability of investing in the funds. The
Russell 2000(R) Index is a trademark / service mark of the Frank Russell
Company. Russell(TM) is a trademark of the Frank Russell Company.
1
<PAGE> 224
================================================================================
CHAIRMAN'S LETTER - CONTINUED SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Morningstar, Inc.(1) One Year
- ------------------------ Total Returns
Ranking Portfolio Portfolio Indepen- Group For Year Ending
- ---------------- Director Director dence Unit December 31,
Percen- Average 2 1 Plus Impact Purchase ------------------
Position tile Return Division Division Division Division Division 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
56/356 84 18.52 AGSPC Stock Index Fund .................... 10C 10C 10C 10D 10A, 10B 21.53% 35.95%
279/587 52 16.79 AGSPC MidCap Index Fund ................... - 4 4 4 - 17.61 29.24
128/249 49 14.57 AGSPC Small Cap Index Fund ................ - 14 14 - - 15.57 26.39
347/369 6 13.83 AGSPC International Equities Fund ......... - 11 11 - - 5.75 9.67
262/587 55 16.79 AGSPC Growth Fund ......................... 15 15 - - - 18.18 46.40
46/356 87 18.52 AGSPC Growth & Income Fund ................ - 16 - - - 22.10 30.55
69/127 46 18.52 AGSPC Science & Technology Fund ........... 17 17 - - - 12.68 60.07
26/356 93 18.52 AGSPC Social Awareness Fund ............... 12 12 12 - - 22.75 37.57
331/416 20 12.33 AGSPC Timed Opportunity Fund .............. - 5 5 5 - 9.99 23.55
139/249 44 14.57 Dreyfus Small Cap Portfolio ............... - 18 - - - 15.14 27.78
360/587 39 16.79 Founders Growth Fund ...................... 30 - - - - 15.35 44.15
262/356 26 18.52 Neuberger&Berman Guardian Trust ........... 29 - - - - 16.54 30.70
116/369 69 13.83 Putnam Global Growth Fund ................. 28 - - - - 15.37 13.68
168/249 33 14.57 Putnam New Opportunities Fund ............. 26 - - - - 9.70 44.87
207/249 17 14.57 Putnam OTC & Emerging Growth Fund ......... 27 - - - - 3.53 54.45
132/356 63 18.52 Scudder Growth and Income Fund ............ 21 - - - - 20.63 29.58
31/416 93 12.33 Templeton Asset Allocation Fund ........... - 19 - - - 17.40 21.02
92/369 75 13.83 Templeton Foreign Fund .................... 32 - - - - 16.74 10.07
39/369 89 13.83 Templeton International Fund .............. - 20 - - - 22.50 14.34
155/249 38 14.57 Twentieth Century Ultra Fund .............. 31 - - - - 12.43 36.23
74/416 82 12.33 Vanguard/Wellington Fund .................. 25 - - - - 14.69 31.30
35/356 90 18.52 Vanguard/Windsor II ....................... 24 - - - - 22.56 37.14
255/295 14 2.86 AGSPC Capital Conservation Fund ........... - 7 7 1 - 0.75 19.58
103/143 28 1.50 AGSPC Government Securities Fund .......... - 8 8 - - 0.90 16.31
54/77 30 7.55 AGSPC Intl Government Bond Fund ........... 13 13 13 - - 3.36 17.63
77/262 71 3.79 AGSPC Money Market Fund ................... 6 6 6 2 - 3.97 4.51
280/295 5 2.86 Vanguard Fixed Income Securities Fund -
Long-Term Corporate Portfolio .......... 22 - - - - (0.72) 24.86
138/143 3 1.50 Vanguard Fixed Income Securities Fund -
Long-Term U. S. Treasury Portfolio ..... 23 - - - - (3.08) 28.51
</TABLE>
(1) SOURCE: Morningstar Variable Annuity/Life Performance Report, January 1997
The Portfolio Director 1 and 2 rankings shown in this publication indicate the
total return rankings of Separate Account A's divisions compared to
Morningstar categories for the twelve month period ending 12/31/96. The total
returns and rankings displayed show value after all management, administration
fees and fund expenses and do not include potential sales charges or
maintenance fees, if applicable. For total return information over a longer
period, see the Portfolio Director 1 and 2 prospectuses. The performance shown
represents past performance. The principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Past performance does not guarantee future
returns.
2
<PAGE> 225
================================================================================
FINANCIAL STATEMENTS SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
ASSETS: ALL DIVISIONS
--------------
<S> <C>
Total investment in shares of mutual funds, at market (cost $5,613,414,313) ................... $6,848,720,710
Balance due from VALIC general account ........................................................ 7,839,650
--------------
NET ASSETS .................................................................................... $6,856,560,360
--------------
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts
(Net of applicable contract loans - partial withdrawals with right of reinvestment) .. $6,840,617,496
Reserves for annuity contracts on benefit ..................................................... 15,942,864
--------------
TOTAL CONTRACT OWNER RESERVES ................................................................. $6,856,560,360
==============
</TABLE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
INVESTMENT INCOME: ALL DIVISIONS
-------------
<S> <C>
Dividends from mutual funds ................................................................... $ 88,556,732
-------------
EXPENSES:
Mortality and expense risk charge ............................................................. 57,564,107
Reimbursement of expenses (Note C) ............................................................ (167,038)
-------------
Total expenses ....................................................................... 57,397,069
-------------
NET INVESTMENT INCOME ......................................................................... 31,159,663
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .............................................................. 96,618,063
Capital gains distributions from mutual funds ................................................. 175,625,286
Net unrealized appreciation of investments during the year .................................... 539,282,575
-------------
Net realized and unrealized gain on investments ............................................. 811,525,924
-------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................................. $ 842,685,587
=============
</TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
ALL DIVISIONS
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................................................... $ 31,159,663 $ 34,191,940
Net realized gain on investments .......................................................... 96,618,063 54,777,042
Capital gains distributions from mutual funds ............................................. 175,625,286 110,007,833
Net unrealized appreciation of investments during the year ................................ 539,282,575 640,017,922
--------------- ---------------
Increase in net assets resulting from operations ........................................ 842,685,587 838,994,737
--------------- ---------------
PRINCIPAL TRANSACTIONS:
Purchase payments ......................................................................... 1,307,543,093 820,355,349
Surrenders of accumulation units by terminations, withdrawals, and maintenance fees ....... (210,060,345) (114,759,722)
Annuity benefit payments .................................................................. (1,897,648) (1,588,610)
Amounts transferred from VALIC general account ............................................ 647,659,402 220,818,448
--------------- ---------------
Increase in net assets resulting from principal transactions ............................ 1,743,244,502 924,825,465
--------------- ---------------
TOTAL INCREASE IN NET ASSETS .............................................................. 2,585,930,089 1,763,820,202
NET ASSETS:
Beginning of year ......................................................................... 4,270,630,271 2,506,810,069
--------------- ---------------
End of year ............................................................................... $ 6,856,560,360 $ 4,270,630,271
=============== ===============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE> 226
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
------------------------------------------------------------------
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ... $ 378,856,928 $ 30,721,138 $1,529,744,413 $ 42,481,642
Balance due (to) from VALIC general account ....... (207,899) 4,786 601,957 (10,515)
-------------- -------------- -------------- --------------
NET ASSETS ........................................ $ 378,649,029 $ 30,725,924 $1,530,346,370 $ 42,471,127
============== ============== ============== ==============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ..................... $ 367,264,137 $ 29,086,370 $1,529,060,822 $ 42,319,960
Reserves for annuity contracts on benefit ......... 11,384,892 1,639,554 1,285,548 151,167
-------------- -------------- -------------- --------------
TOTAL CONTRACT OWNER RESERVES ..................... $ 378,649,029 $ 30,725,924 $1,530,346,370 $ 42,471,127
============== ============== ============== ==============
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
AGSPC NEUBERGER&
TIMED DREYFUS FOUNDERS BERMAN
OPPORTUNITY SMALL CAP GROWTH GUARDIAN
FUND PORTFOLIO FUND TRUST
DIVISION 5 DIVISION 18 DIVISION 30 DIVISION 29
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ... $173,145,150 $657,404,003 $ 31,872,619 $ 9,144,621
Balance due (to) from VALIC general account ....... 84,325 982,056 245,857 58,685
------------ ------------ ------------ ------------
NET ASSETS ........................................ $173,229,475 $658,386,059 $ 32,118,476 $ 9,203,306
============ ============ ============ ============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ..................... $173,149,425 $658,204,551 $ 32,118,476 $ 9,203,306
Reserves for annuity contracts on benefit ......... 80,050 181,508 -- --
------------ ------------ ------------ ------------
TOTAL CONTRACT OWNER RESERVES ..................... $173,229,475 $658,386,059 $ 32,118,476 $ 9,203,306
============ ============ ============ ============
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1996
<TABLE>
<CAPTION>
AGSPC
TWENTIETH VANGUARD/ CAPITAL
CENTURY ULTRA WELLINGTON VANGUARD/ CONSERVATION
FUND FUND WINDSOR II FUND
DIVISION 31 DIVISION 25 DIVISION 24 DIVISION 1
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market ... $17,259,437 $25,025,702 $41,436,294 $ 6,488,667
Balance due (to) from VALIC general account ....... 58,221 163,816 363,484 13,203
----------- ----------- ----------- -----------
NET ASSETS ........................................ $17,317,658 $25,189,518 $41,799,778 $ 6,501,870
=========== =========== =========== ===========
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts (Net of
applicable contract loans - partial withdrawals
with right of reinvestment) ..................... $17,317,658 $25,189,518 $41,799,778 $ 6,497,192
Reserves for annuity contracts on benefit ......... -- -- -- 4,678
----------- ----------- ----------- -----------
TOTAL CONTRACT OWNER RESERVES ..................... $17,317,658 $25,189,518 $41,799,778 $ 6,501,870
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE> 227
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC AGSPC AGSPC
MIDCAP SMALL CAP INTERNATIONAL AGSPC GROWTH & SCIENCE & SOCIAL
INDEX INDEX EQUITIES GROWTH INCOME TECHNOLOGY AWARENESS
FUND FUND FUND FUND FUND FUND FUND
DIVISION 4 DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16 DIVISION 17 DIVISION 12
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 565,680,826 $ 184,521,204 $ 191,110,175 $ 633,819,402 $ 171,283,956 $ 709,577,919 $ 104,772,608
30,567 (42,882) 116,353 1,296,205 244,249 1,386,245 143,421
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 565,711,393 $ 184,478,322 $ 191,226,528 $ 635,115,607 $ 171,528,205 $ 710,964,164 $ 104,916,029
============== ============== ============== ============== ============== ============== ==============
$ 565,558,770 $ 184,473,371 $ 191,050,097 $ 634,868,931 $ 171,510,875 $ 710,720,450 $ 104,916,029
152,623 4,951 176,431 246,676 17,330 243,714 -
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 565,711,393 $ 184,478,322 $ 191,226,528 $ 635,115,607 $ 171,528,205 $ 710,964,164 $ 104,916,029
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
PUTNAM PUTNAM PUTNAM OTC & SCUDDER
GLOBAL NEW EMERGING GROWTH AND TEMPLETON TEMPLETON TEMPLETON
GROWTH OPPORTUNITIES GROWTH INCOME ASSET ALLOCATION FOREIGN INTERNATIONAL
FUND FUND FUND FUND FUND FUND FUND
DIVISION 28 DIVISION 26 DIVISION 27 DIVISION 21 DIVISION 19 DIVISION 32 DIVISION 20
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 17,494,577 $ 49,812,851 $ 43,542,866 $ 18,325,255 $ 194,271,899 $ 39,066,749 $ 529,645,484
114,481 410,128 224,089 98,230 328,988 388,324 378,327
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485 $ 194,600,887 $ 39,455,073 $ 530,023,811
============== ============== ============== ============== ============== ============== ==============
$ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485 $ 194,377,876 $ 39,455,073 $ 529,901,911
- - - - 223,011 - 121,900
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485 $ 194,600,887 $ 39,455,073 $ 530,023,811
============== ============== ============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC AGSPC AGSPC FIXED INCOME FIXED INCOME
CAPITAL GOVERNMENT INTERNATIONAL SECURITIES FUND - SECURITIES FUND -
CONSERVATION SECURITIES GOVERNMENT AGSPC MONEY MARKET FUND L/T CORPORATE L/T U.S. TREASURY
FUND FUND BOND FUND -------------------------------- PORTFOLIO PORTFOLIO
DIVISION 7 DIVISION 8 DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 22 DIVISION 23
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 55,255,834 $ 85,570,274 $ 178,021,807 $ 4,870,208 $ 120,378,551 $ 3,528,351 $ 4,589,300
33,645 1,665 150,364 9,293 380,075 2,506 (212,599)
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 55,289,479 $ 85,571,939 $ 178,172,171 $ 4,879,501 $ 120,758,626 $ 3,530,857 $ 4,376,701
============== ============== ============== ============== ============== ============== ==============
$ 55,289,479 $ 85,571,939 $ 178,161,619 $ 4,879,501 $ 120,740,347 $ 3,530,857 $ 4,376,701
- - 10,552 - 18,279 - -
- -------------- -------------- -------------- -------------- -------------- -------------- --------------
$ 55,289,479 $ 85,571,939 $ 178,172,171 $ 4,879,501 $ 120,758,626 $ 3,530,857 $ 4,376,701
============== ============== ============== ============== ============== ============== ==============
</TABLE>
5
<PAGE> 228
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
------------------------------------------------------------------
DIVISION 10A DIVISION 10B DIVISION 10C DIVISION 10D
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ...................... $ 6,791,052 $ 559,035 $ 24,619,582 $ 775,055
-------------- -------------- -------------- --------------
EXPENSES:
Mortality and expense risk charge ................ 3,604,468 170,656 12,878,174 411,146
Reimbursement of expenses (Note C) ............... -- (73,695) -- --
-------------- -------------- -------------- --------------
Total expenses ................................ 3,604,468 96,961 12,878,174 411,146
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) ..................... 3,186,584 462,074 11,741,408 363,909
-------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ................. 12,767,086 2,085,848 10,129,542 2,391,364
Capital gains distributions from mutual funds .... 2,739,498 222,372 11,061,404 307,213
Net unrealized appreciation (depreciation)
of investments during the year ................ 51,675,655 3,182,195 222,475,966 4,964,983
-------------- -------------- -------------- --------------
Net realized and unrealized gain on investments .. 67,182,239 5,490,415 243,666,912 7,663,560
-------------- -------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................... $ 70,368,823 $ 5,952,489 $ 255,408,320 $ 8,027,469
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC
SCIENCE & SOCIAL TIMED DREYFUS
STATEMENTS OF OPERATIONS TECHNOLOGY AWARENESS OPPORTUNITY SMALL CAP
For the year ended December 31, 1996 FUND FUND FUND PORTFOLIO
DIVISION 17 DIVISION 12 DIVISION 5 DIVISION 18
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ........................... $ -- $ 1,339,307 $ 5,922,604 $ 1,224,730
-------------- -------------- -------------- --------------
EXPENSES:
Mortality and expense risk charge ..................... 5,521,307 792,838 1,788,197 6,549,419
Reimbursement of expenses (Note C) .................... -- -- -- --
-------------- -------------- -------------- --------------
Total expenses ..................................... 5,521,307 792,838 1,788,197 6,549,419
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) .......................... (5,521,307) 546,469 4,134,407 (5,324,689)
-------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ...................... 20,659,560 778,115 7,668,485 1,994,033
Capital gains distributions from mutual funds ......... 32,117,202 10,715,745 18,741,770 19,221,026
Net unrealized appreciation (depreciation)
of investments during the year ..................... 15,569,750 4,483,540 (13,565,417) 56,124,110
-------------- -------------- -------------- --------------
Net realized and unrealized gain (loss) on investments 68,346,512 15,977,400 12,844,838 77,339,169
-------------- -------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 62,825,205 $ 16,523,869 $ 16,979,245 $ 72,014,480
============== ============== ============== ==============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE> 229
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC AGSPC AGSPC
MIDCAP SMALL CAP INTERNATIONAL AGSPC GROWTH &
INDEX INDEX EQUITIES GROWTH INCOME
FUND FUND FUND FUND FUND
DIVISION 4 DIVISION 14 DIVISION 11 DIVISION 15 DIVISION 16
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 6,776,195 $ 2,324,957 $ 3,599,021 $ 2,128,889 $ 799,107
- -------------- -------------- -------------- -------------- --------------
5,262,899 1,687,562 2,007,600 4,407,390 1,201,329
-- -- -- -- --
5,262,899 1,687,562 2,007,600 4,407,390 1,201,329
- -------------- -------------- -------------- -------------- --------------
1,513,296 637,395 1,591,421 (2,278,501) (402,222)
- -------------- -------------- -------------- -------------- --------------
17,436,698 4,544,601 10,405,298 130,878 483,596
33,690,174 11,216,991 6,021,502 11,891,551 3,131,642
33,029,566 7,711,563 (6,663,813) 58,161,783 19,205,904
- -------------- -------------- -------------- -------------- --------------
84,156,438 23,473,155 9,762,987 70,184,212 22,821,142
- -------------- -------------- -------------- -------------- --------------
$ 85,669,734 $ 24,110,550 $ 11,354,408 $ 67,905,711 $ 22,418,920
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER& PUTNAM PUTNAM PUTNAM OTC &
FOUNDERS BERMAN GLOBAL NEW EMERGING
GROWTH GUARDIAN GROWTH OPPORTUNITIES GROWTH
FUND TRUST FUND FUND FUND
DIVISION 30* DIVISION 29* DIVISION 28* DIVISION 26* DIVISION 27*
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 31,678 $ 33,512 $ 386,503 $ -- $ --
- -------------- -------------- -------------- -------------- --------------
74,336 22,319 39,664 113,933 108,371
(14,593) (4,401) (7,712) (22,122) (21,011)
- -------------- -------------- -------------- -------------- --------------
59,743 17,918 31,952 91,811 87,360
- -------------- -------------- -------------- -------------- --------------
(28,065) 15,594 354,551 (91,811) (87,360)
- -------------- -------------- -------------- -------------- --------------
-- 10,864 1,237 9,737 9,014
2,106,129 128,127 765,977 333,297 2,846,114
(1,697,540) 348,451 (504,554) (1,619,779) (4,620,592)
- -------------- -------------- -------------- -------------- --------------
408,589 487,442 262,660 (1,276,745) (1,765,464)
- -------------- -------------- -------------- -------------- --------------
$ 380,524 $ 503,036 $ 617,211 $ (1,368,556) $ (1,852,824)
============== ============== ============== ============== ==============
</TABLE>
7
<PAGE> 230
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
SCUDDER
GROWTH AND TEMPLETON TEMPLETON
INCOME ASSET ALLOCATION FOREIGN
FUND FUND FUND
DIVISION 21* DIVISION 19 DIVISION 32*
---------------- ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME: .................................... $ 158,744 $ 3,271,039 $ 550,688
Dividends from mutual funds ........................... --
EXPENSES:
Mortality and expense risk charge ..................... 38,490 1,812,817 84,678
Reimbursement of expenses (Note C) .................... -- -- (16,623)
Total expenses ..................................... 38,490 1,812,817 68,055
NET INVESTMENT INCOME (LOSS) .......................... 120,254 1,458,222 482,633
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on investments ...................... 22,419 430,651 125
Capital gains distributions from mutual funds ......... 607,596 2,566,073 285,587
Net unrealized appreciation (depreciation)
of investments during the year ..................... 84,718 19,843,521 1,121,790
Net realized and unrealized gain on investments ....... 714,733 22,840,245 1,407,502
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .......................... $ 834,987 $ 24,298,467 $ 1,890,135
================ ================ ================
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
AGSPC
GOVERNMENT
AGSPC CAPITAL CONSERVATION FUND SECURITIES
-------------------------------- FUND
DIVISION 1 DIVISION 7 DIVISION 8
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds ................................ $ 454,827 $ 3,599,885 $ 4,872,690
-------------- -------------- --------------
EXPENSES:
Mortality and expense risk charge .......................... 69,783 545,929 795,753
Reimbursement of expenses (Note C) ......................... -- -- --
Total expenses .......................................... 69,783 545,929 795,753
-------------- -------------- --------------
NET INVESTMENT INCOME ...................................... 385,044 3,053,956 4,076,937
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments .................... 60,355 (425,696) (378,294)
Capital gains distributions from mutual funds .............. -- -- --
Net unrealized appreciation (depreciation)
of investments during the year .......................... (428,426) (2,170,354) (2,658,037)
-------------- -------------- --------------
Net realized and unrealized gain (loss) on investments ..... (368,071) (2,596,050) (3,036,331)
-------------- -------------- --------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................... $ 16,973 $ 457,906 $ 1,040,606
============== ============== ==============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 231
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TEMPLETON TWENTIETH VANGUARD/
INTERNATIONAL CENTURY ULTRA WELLINGTON VANGUARD/
FUND FUND FUND WINDSOR II
DIVISION 20 DIVISION 31* DIVISION 25* DIVISION 24*
- -------------- -------------- -------------- --------------
<S> <C> <C> <C>
$ 4,540,296 $ -- $ 379,677 $ 576,345
- -------------- -------------- -------------- --------------
4,934,897 43,940 53,077 88,288
-- (6,881) -- --
- -------------- -------------- -------------- --------------
4,934,897 37,059 53,077 88,288
- -------------- -------------- -------------- --------------
(394,601) (37,059) 326,600 488,057
- -------------- -------------- -------------- --------------
3,551,468 18,993 -- 11,774
1,324,253 884,238 818,129 1,554,790
- -------------- -------------- -------------- --------------
78,888,709 (659,907) (444,072) (217,368)
- -------------- -------------- -------------- --------------
83,764,430 243,324 374,057 1,349,196
- -------------- -------------- -------------- --------------
$ 83,369,829 $ 206,265 $ 700,657 $ 1,837,253
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
AGSPC FIXED INCOME FIXED INCOME
INTERNATIONAL SECURITIES FUND- SECURITIES FUND-
GOVERNMENT AGSPC MONEY MARKET FUND L/T CORPORATE L/T U.S. TREASURY
BOND FUND ------------------------------- PORTFOLIO PORTFOLIO
DIVISION 13 DIVISION 2 DIVISION 6 DIVISION 22* DIVISION 23*
- -------------- -------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
$ 8,037,534 $ 272,228 $ 4,429,817 $ 44,221 $ 57,514
- -------------- -------------- -------------- ---------------- ----------------
1,475,858 55,691 904,012 8,054 11,232
-- -- -- -- --
- -------------- -------------- -------------- ---------------- ----------------
1,475,858 55,691 904,012 8,054 11,232
- -------------- -------------- -------------- ---------------- ----------------
6,561,676 216,537 3,525,805 36,167 46,282
- -------------- -------------- -------------- ---------------- ----------------
1,815,703 -- -- 2,260 2,349
295,588 -- -- 31,298 --
(2,362,017) -- -- (11,407) 33,654
- -------------- -------------- -------------- ---------------- ----------------
(250,726) -- -- 22,151 36,003
- -------------- -------------- -------------- ---------------- ----------------
$ 6,310,950 $ 216,537 $ 3,525,805 $ 58,318 $ 82,285
============== ============== ============== ================ ================
</TABLE>
9
<PAGE> 232
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
---------------------------------------------------------------
DIVISION 10A DIVISION 10B
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income .......................................... $ 3,186,584 $ 3,760,733 $ 462,074 $ 493,423
Net realized gain on investments ............................... 12,767,086 5,349,737 2,085,848 631,222
Capital gains distributions from mutual funds .................. 2,739,498 6,875,040 222,372 570,166
Net unrealized appreciation
of investments during the year .............................. 51,675,655 78,996,842 3,182,195 6,528,773
------------- ------------- ------------- -------------
Increase in net assets resulting from operations .......... 70,368,823 94,982,352 5,952,489 8,223,584
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .............................................. 4,265,439 5,033,111 501,306 574,384
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ........................... (22,309,652) (16,541,542) (2,364,484) (1,698,590)
Annuity benefit payments ....................................... (1,401,028) (1,296,973) (250,350) (218,489)
Amounts transferred (to) from VALIC general account ............ (13,443,730) (23,599,151) (1,406,730) (2,885,564)
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ................... (32,888,971) (36,404,555) (3,520,258) (4,228,259)
------------- ------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS ................................... 37,479,852 58,577,797 2,432,231 3,995,325
NET ASSETS:
Beginning of year .............................................. 341,169,177 282,591,380 28,293,693 24,298,368
------------- ------------- ------------- -------------
End of year .................................................... $ 378,649,029 $ 341,169,177 $ 30,725,924 $ 28,293,693
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ........................... 29,995,363 33,814,520 1,560,525 1,836,094
Purchase payments .............................................. 323,038 497,922 26,729 39,513
Surrenders ..................................................... (1,822,126) (1,718,657) (123,291) (110,735)
Transfers - interdivision and (to) from VALIC general account .. (1,116,886) (2,598,422) (83,562) (204,347)
------------- ------------- ------------- -------------
Accumulation units end of year ................................. 27,379,389 29,995,363 1,380,401 1,560,525
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31:
---------------------------- ----------------------------
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Accumulation unit value........................................ $ 13.413891 $ 11.036946 $ 21.070956 $ 17.221812
============= ============ ============= ============
Annuity unit value assuming a 3.5% discount factor............. $ 3.873132 $ 3.298369 $ 5.173716 $ 4.376632
============= ============ ============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE> 233
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC STOCK INDEX FUND
- ------------------------------------------------------------------------
DIVISION 10C DIVISION 10D
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 11,741,408 $ 10,698,331 $ 363,909 $ 472,763
10,129,542 10,775,457 2,391,364 1,335,894
11,061,404 21,483,819 307,213 831,333
222,475,966 221,238,425 4,964,983 9,456,579
- --------------- --------------- --------------- ---------------
255,408,320 264,196,032 8,027,469 12,096,569
- --------------- --------------- --------------- ---------------
210,185,191 155,833,642 1,004,698 1,280,197
(49,624,470) (30,060,583) (2,219,367) (2,417,823)
(61,625) (29,665) (10,433) (5,520)
47,055,243 (42,300,802) (5,536,446) (7,115,532)
- --------------- --------------- --------------- ---------------
207,554,339 83,442,592 (6,761,548) (8,258,678)
- --------------- --------------- --------------- ---------------
462,962,659 347,638,624 1,265,921 3,837,891
1,067,383,711 719,745,087 41,205,206 37,367,315
- --------------- --------------- --------------- ---------------
$ 1,530,346,370 $ 1,067,383,711 $ 42,471,127 $ 41,205,206
=============== =============== =============== ===============
455,255,243 416,234,288 9,885,873 12,207,684
80,768,570 76,950,994 231,458 341,405
(18,096,464) (14,254,441) (486,940) (663,263)
18,879,616 (23,675,598) (1,248,687) (1,999,953)
- --------------- --------------- --------------- ---------------
536,806,965 455,255,243 8,381,704 9,885,873
=============== =============== =============== ===============
<CAPTION>
DECEMBER 31: DECEMBER 31:
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 2.848437 $ 2.343900 $ 5.049088 $ 4.155057
=============== =============== =============== ===============
$ 2.085358 $ 1.776053 $ 3.032347 $ 2.582770
=============== =============== =============== ===============
<CAPTION>
AGSPC
AGSPC SMALL CAP
MIDCAP INDEX FUND INDEX FUND
- ---------------------------------- ----------------------------------
DIVISION 4 DIVISION 14
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 1,513,296 $ 2,391,702 $ 637,395 $ 563,294
17,436,698 10,603,188 4,544,601 2,963,270
33,690,174 17,377,938 11,216,991 2,945,819
33,029,566 76,322,743 7,711,563 24,766,420
- --------------- --------------- --------------- ---------------
85,669,734 106,695,571 24,110,550 31,238,803
- --------------- --------------- --------------- ---------------
76,583,041 87,946,264 31,004,229 40,608,391
(21,727,656) (15,264,152) (7,478,000) (4,632,557)
(19,036) (16,844) (563) (3,022)
(55,201,966) (69,269,652) (15,148,966) (38,506,364)
- --------------- --------------- --------------- ---------------
(365,617) 3,395,616 8,376,700 (2,533,552)
- --------------- --------------- --------------- ---------------
85,304,117 110,091,187 32,487,250 28,705,251
480,407,276 370,316,089 151,991,072 123,285,821
- --------------- --------------- --------------- ---------------
$ 565,711,393 $ 480,407,276 $ 184,478,322 $ 151,991,072
=============== =============== =============== ===============
172,613,690 171,442,018 98,335,995 100,383,839
25,301,831 35,874,094 18,844,484 30,141,511
(7,030,990) (5,995,776) (4,305,572) (3,356,851)
(18,067,553) (28,706,646) (9,554,065) (28,832,504)
- --------------- --------------- --------------- ---------------
172,816,978 172,613,690 103,320,842 98,335,995
=============== =============== =============== ===============
<CAPTION>
DECEMBER 31: DECEMBER 31:
- ---------------------------------- ----------------------------------
1996 1995 1996 1995
- --------------- --------------- --------------- ---------------
<S> <C> <C> <C>
$ 3.272588 $ 2.782677 $ 1.785442 $ 1.544896
=============== =============== =============== ===============
$ 2.044683 $ 1.799452 $ 1.520786 $ 1.361960
=============== =============== =============== ===============
</TABLE>
11
<PAGE> 234
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
AGSPC
INTERNATIONAL EQUITIES AGSPC
FUND GROWTH FUND
DIVISION 11 DIVISION 15
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ................................... $ 1,591,421 $ 1,304,847 $ (2,278,501) $ (869,578)
Net realized gain on investments ............................... 10,405,298 13,215,875 130,878 8,587
Capital gains distributions from mutual funds .................. 6,021,502 4,363,325 11,891,551 3,650,399
Net unrealized appreciation (depreciation)
of investments during the year .............................. (6,663,813) (725,229) 58,161,783 39,103,633
------------- ------------- ------------- -------------
Increase in net assets resulting from operations .......... 11,354,408 18,158,818 67,905,711 41,893,041
------------- ------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments .............................................. 34,022,917 52,726,233 164,255,730 58,223,803
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ........................... (8,616,063) (6,722,321) (10,378,550) (1,776,523)
Annuity benefit payments ....................................... (13,432) (5,870) (38,688) --
Amounts transferred (to) from VALIC general account ............ (45,208,742) (63,364,477) 172,227,639 109,893,422
------------- ------------- ------------- -------------
Increase (decrease) in net assets
resulting from principal transactions ................... (19,815,320) (17,366,435) 326,066,131 166,340,702
------------- ------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ........................ (8,460,912) 792,383 393,971,842 208,233,743
NET ASSETS:
Beginning of year .............................................. 199,687,440 198,895,057 241,143,765 32,910,022
------------- ------------- ------------- -------------
End of year .................................................... $ 191,226,528 $ 199,687,440 $ 635,115,607 $ 241,143,765
============= ============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ........................... 172,564,018 187,749,916 164,417,848 32,633,370
Purchase payments .............................................. 28,526,458 49,402,081 101,043,809 45,984,606
Surrenders ..................................................... (7,207,422) (6,214,230) (5,693,969) (1,266,891)
Transfers - interdivision and (to) from VALIC general account .. (37,656,740) (58,373,749) 106,504,821 87,066,763
------------- ------------- ------------- -------------
Accumulation units end of year ................................. 156,226,314 172,564,018 366,272,509 164,417,848
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31:
------------------------------ -----------------------------
1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Accumulation unit value ........................................ $ 1.222906 $ 1.156454 $ 1.733324 $ 1.466652
============= ============= ============ ============
Annuity unit value assuming a 3.5% discount factor ............. $ 0.953246 $ 0.933003 $ 1.580931 $ 1.384532
============= ============= ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 235
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC
AGSPC AGSPC AGSPC TIMED OPPORTUNITY
GROWTH & INCOME FUND SCIENCE & TECHNOLOGY FUND SOCIAL AWARENESS FUND FUND
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
DIVISION 16 DIVISION 17 DIVISION 12 DIVISION 5
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ (402,222) $ (75,425) $ (5,521,307) $ (1,432,122) $ 546,469 $ 599,922 $ 4,134,407 $ 5,452,120
483,596 19,953 20,659,560 6,545,968 778,115 371,169 7,668,485 2,006,917
3,131,642 472,785 32,117,202 37,380,606 10,715,745 3,609,468 18,741,770 3,186,462
19,205,904 8,794,032 15,569,750 41,310,631 4,483,540 10,227,915 (13,565,417) 26,710,438
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
22,418,920 9,211,345 62,825,205 83,805,083 16,523,869 14,808,474 16,979,245 37,355,937
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
41,180,652 17,507,504 181,422,903 93,027,877 18,543,307 10,849,944 15,126,160 20,940,181
(2,962,157) (641,935) (14,164,178) (3,055,711) (3,798,307) (1,516,923) (11,037,733) (7,824,702)
(1,598) -- (40,073) (824) -- -- (7,329) (6,591)
43,756,812 28,680,150 105,706,951 147,758,969 13,547,350 (2,864,774) (30,784,573) (42,300,580)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
81,973,709 45,545,719 272,925,603 237,730,311 28,292,350 6,468,247 (26,703,475) (29,191,692)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
104,392,629 54,757,064 335,750,808 321,535,394 44,816,219 21,276,721 (9,724,230) 8,164,245
67,135,576 12,378,512 375,213,356 53,677,962 60,099,810 38,823,089 182,953,705 174,789,460
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 171,528,205 $ 67,135,576 $ 710,964,164 $ 375,213,356 $ 104,916,029 $ 60,099,810 $ 173,229,475 $ 182,953,705
============= ============= ============= ============= ============= ============= ============= =============
51,779,089 12,386,602 187,862,232 42,726,137 32,750,120 29,015,764 75,851,431 89,377,860
28,095,895 14,980,745 84,389,312 54,428,033 9,143,695 6,860,477 6,003,535 9,806,864
(1,842,881) (455,265) (6,049,987) (1,584,330) (1,827,332) (929,671) (4,376,494) (3,569,040)
30,309,532 24,867,007 49,608,089 92,292,392 6,507,533 (2,196,450) (12,185,855) (19,764,253)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
108,341,635 51,779,089 315,809,646 187,862,232 46,574,016 32,750,120 65,292,617 75,851,431
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31: DECEMBER 31: DECEMBER 31:
- ------------------------------ ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.583056 $ 1.296577 $ 2.250471 $ 1.997175 $ 2.252673 $ 1.835102 $ 2.651899 $ 2.411022
============= ============= ============= ============= ============= ============= ============= =============
$ 1.443874 $ 1.223980 $ 2.052612 $ 1.885352 $ 1.755941 $ 1.480522 $ 1.680570 $ 1.581407
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
13
<PAGE> 236
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
FOUNDERS
GROWTH
DREYFUS SMALL CAP PORTFOLIO FUND
------------------------------ -------------
DIVISION 18 DIVISION 30
------------------------------ -------------
1996 1995 1996*
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) ..................................... $ (5,324,689) $ (1,441,343) $ (28,065)
Net realized gain on investments ................................. 1,994,033 26,776 --
Capital gains distributions from mutual funds .................... 19,221,026 6,796,184 2,106,129
Net unrealized appreciation (depreciation)
of investments during the year ................................ 56,124,110 47,179,100 (1,697,540)
------------- ------------- -------------
Increase (decrease) in net assets resulting from operations . 72,014,480 52,560,717 380,524
------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ................................................ 168,538,535 96,201,687 8,595,522
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................. (13,795,343) (3,867,838) (36,494)
Annuity benefit payments ......................................... (8,413) (915) --
Amounts transferred (to) from VALIC general account .............. 74,732,906 122,606,635 23,178,924
------------- ------------- -------------
Increase in net assets
resulting from principal transactions ..................... 229,467,685 214,939,569 31,737,952
------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS ..................................... 301,482,165 267,500,286 32,118,476
NET ASSETS:
Beginning of year ................................................ 356,903,894 89,403,608 --
------------- -------------
End of year ...................................................... $ 658,386,059 $ 356,903,894 $ 32,118,476
============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................. 267,735,219 85,169,871 --
Purchase payments ................................................ 117,376,109 80,950,706 9,274,157
Surrenders ....................................................... (8,756,141) (2,954,777) (32,596)
Transfers - interdivision and (to) from VALIC general account .... 52,528,063 104,569,419 21,955,903
------------- ------------- -------------
Accumulation units end of year ................................... 428,883,250 267,735,219 31,197,464
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31,
--------------------------- ------------
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Accumulation unit value ............................... $ 1.534694 $ 1.332904 $ 1.029522
============ ============ ============
Annuity unit value assuming a 3.5% discount factor .... $ 1.409551 $ 1.267071 $ 1.011867
============ ============ ============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE> 237
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PUTNAM
PUTNAM PUTNAM OTC & SCUDDER
GLOBAL NEW EMERGING GROWTH AND
NEUBERGER&BERMAN GROWTH OPPORTUNITIES GROWTH INCOME
GUARDIAN TRUST FUND FUND FUND FUND
DIVISION 29 DIVISION 28 DIVISION 26 DIVISION 27 DIVISION 21
- -------------- -------------- -------------- -------------- --------------
1996* 1996* 1996* 1996* 1996*
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 15,594 $ 354,551 $ (91,811) $ (87,360) $ 120,254
10,864 1,237 9,737 9,014 22,419
128,127 765,977 333,297 2,846,114 607,596
348,451 (504,554) (1,619,779) (4,620,592) 84,718
- -------------- -------------- -------------- -------------- --------------
503,036 617,211 (1,368,556) (1,852,824) 834,987
- -------------- -------------- -------------- -------------- --------------
2,108,685 3,174,282 11,510,093 11,571,920 4,643,308
(21,439) (15,952) (87,148) (77,988) (23,004)
-- -- -- -- --
6,613,024 13,833,517 40,168,590 34,125,847 12,968,194
- -------------- -------------- -------------- -------------- --------------
8,700,270 16,991,847 51,591,535 45,619,779 17,588,498
- -------------- -------------- -------------- -------------- --------------
9,203,306 17,609,058 50,222,979 43,766,955 18,423,485
-- -- -- -- --
- -------------- -------------- -------------- -------------- --------------
$ 9,203,306 $ 17,609,058 $ 50,222,979 $ 43,766,955 $ 18,423,485
============== ============== ============== ============== ==============
-- -- -- -- --
2,109,025 3,377,941 13,342,250 13,681,504 4,726,075
(19,267) (16,466) (87,502) (82,877) (21,254)
6,121,834 13,287,125 39,746,951 35,304,201 11,819,225
- -------------- -------------- -------------- -------------- --------------
8,211,592 16,648,600 53,001,699 48,902,828 16,524,046
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1996 1996 1996 1996 1996
- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
$ 1.120770 $ 1.057690 $ 0.947573 $ 0.894978 $ 1.114950
============== ============== ============== ============== ==============
$ 1.101550 $ 1.039552 $ 0.931324 $ 0.879630 $ 1.095830
============== ============== ============== ============== ==============
</TABLE>
15
<PAGE> 238
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON ASSET FOREIGN
ALLOCATION FUND FUND
------------------------------ -------------
DIVISION 19 DIVISION 32
------------------------------ -------------
1996 1995 1996*
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) .................................... $ 1,458,222 $ 360,608 $ 482,633
Net realized gain on investments ................................ 430,651 87,754 125
Capital gains distributions from mutual funds ................... 2,566,073 -- 285,587
Net unrealized appreciation (depreciation)
of investments during the year ............................... 19,843,521 11,935,576 1,121,790
------------- ------------- -------------
Increase in net assets resulting from operations ........... 24,298,467 12,383,938 1,890,135
------------- ------------- -------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... 46,026,342 26,412,918 9,386,263
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................ (3,839,217) (1,156,891) (122,577)
Annuity benefit payments ........................................ (39,584) (1,361) --
Amounts transferred (to) from VALIC general account ............. 33,529,527 24,133,475 28,301,252
------------- ------------- -------------
Increase in net assets
resulting from principal transactions .................... 75,677,068 49,388,141 37,564,938
------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS .................................... 99,975,535 61,772,079 39,455,073
NET ASSETS:
Beginning of year ............................................... 94,625,352 32,853,273 --
------------- ------------- -------------
End of year ..................................................... $ 194,600,887 $ 94,625,352 $ 39,455,073
============= ============= =============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ 78,494,505 32,807,602 --
Purchase payments ............................................... 35,369,271 24,212,805 10,156,940
Surrenders ...................................................... (2,676,756) (964,768) (116,295)
Transfers - interdivision and (to) from VALIC general account ... 26,197,650 22,438,866 26,631,183
============= ============= =============
Accumulation units end of year .................................. 137,384,670 78,494,505 36,671,828
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31: DECEMBER 31,
----------------------------- -------------
1996 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Accumulation unit value ........................................... $ 1.414844 $ 1.205181 $ 1.075896
============= ============= =============
Annuity unit value assuming a 3.5% discount factor ............... $ 1.299474 $ 1.145656 $ 1.057446
============= ============= =============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE> 239
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TWENTIETH
CENTURY VANGUARD/
ULTRA WELLINGTON VANGUARD/
TEMPLETON INTERNATIONAL FUND FUND FUND WINDSOR II
- ------------------------------ ------------- ------------- -------------
DIVISION 20 DIVISION 31 DIVISION 25 DIVISION 24
- ------------------------------ ------------- ------------- -------------
1996 1995 1996* 1996* 1996*
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ (394,601) $ (1,169,628) $ (37,059) $ 326,600 $ 488,057
3,551,468 25,628 18,993 -- 11,774
1,324,253 350,470 884,238 818,129 1,554,790
78,888,709 23,406,038 (659,907) (444,072) (217,368)
- ------------- ------------- ------------- ------------- -------------
83,369,829 22,612,508 206,265 700,657 1,837,253
- ------------- ------------- ------------- ------------- -------------
121,376,573 69,120,243 4,513,492 7,042,246 10,178,409
(9,699,818) (2,577,387) (29,941) (12,075) (103,527)
(3,367) (463) -- -- --
84,599,243 89,125,401 12,627,842 17,458,690 29,887,643
- ------------- ------------- ------------- ------------- -------------
196,272,631 155,667,794 17,111,393 24,488,861 39,962,525
- ------------- ------------- ------------- ------------- -------------
279,642,460 178,280,302 17,317,658 25,189,518 41,799,778
250,381,351 72,101,049 -- -- --
- ------------- ------------- ------------- ------------- -------------
$ 530,023,811 $ 250,381,351 $ 17,317,658 $ 25,189,518 $ 41,799,778
============= ============= ============= ============= =============
219,124,926 71,716,511 -- -- --
97,229,761 65,697,216 4,747,541 7,335,077 10,359,662
(7,187,616) (2,198,909) (27,374) (12,748) (91,924)
69,414,878 83,910,108 11,933,909 15,544,305 27,025,023
- ------------- ------------- ------------- ------------- -------------
378,581,949 219,124,926 16,654,076 22,866,634 37,292,761
============= ============= ============= ============= =============
<CAPTION>
DECEMBER 31:
- ------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1996 1996
- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$ 1.399702 $ 1.142586 $ 1.039845 $ 1.101584 $ 1.120855
============= ============= ============= ============= =============
$ 1.285567 $ 1.086152 $ 1.022013 $ 1.082693 $ 1.101634
============= ============= ============= ============= =============
</TABLE>
17
<PAGE> 240
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
AGSPC AGSPC
CAPITAL CONSERVATION CAPITAL CONSERVATION
FUND FUND
---------------------------- ----------------------------
DIVISION 1 DIVISION 7
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ......................................... $ 385,044 $ 449,111 $ 3,053,956 $ 2,607,547
Net realized gain (loss) on investments ....................... 60,355 65,122 (425,696) (138,616)
Capital gains distributions from mutual funds ................. -- -- -- --
Net unrealized appreciation (depreciation)
of investments during the year ............................. (428,426) 906,759 (2,170,354) 5,643,853
------------ ------------ ------------ ------------
Increase in net assets resulting from operations ......... 16,973 1,420,992 457,906 8,112,784
------------ ------------ ------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................. 280,092 286,600 10,990,401 10,464,260
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees .......................... (624,478) (623,792) (2,515,394) (1,972,220)
Annuity benefit payments ...................................... (512) (499) -- --
Amounts transferred (to) from VALIC general account ........... (953,654) (1,306,120) (7,231,500) (3,821,311)
------------ ------------ ------------ ------------
Increase (decrease) in net assets
resulting from principal transactions .................. (1,298,552) (1,643,811) 1,243,507 4,670,729
------------ ------------ ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS ....................... (1,281,579) (222,819) 1,701,413 12,783,513
NET ASSETS:
Beginning of year ............................................. 7,783,449 8,006,268 53,588,066 40,804,553
------------ ------------ ------------ ------------
End of year ................................................... $ 6,501,870 $ 7,783,449 $ 55,289,479 $ 53,588,066
============ ============ ============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year .......................... 2,402,085 2,953,861 29,573,808 26,859,219
Purchase payments ............................................. 87,169 96,297 6,098,740 6,253,935
Surrenders .................................................... (196,821) (207,008) (1,343,357) (1,058,493)
Transfers - interdivision and (to) from VALIC
general account . ........................................... (300,897) (441,065) (4,042,697) (2,480,853)
------------ ------------ ------------ ------------
Accumulation units end of year ................................ 1,991,536 2,402,085 30,286,494 29,573,808
============ ============ ============ ============
<CAPTION>
DECEMBER 31: DECEMBER 31:
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Accumulation unit value ....................................... $ 3.262402 $ 3.238370 $ 1.825549 $ 1.812011
============ ============ ============ ============
Annuity unit value assuming a 3.5% discount factor ............ $ 1.794552 $ 1.843690 $ 1.255251 $ 1.289558
============ ============ ============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE> 241
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGSPC AGSPC
GOVERNMENT SECURITIES INTERNATIONAL GOVERNMENT AGSPC
FUND BOND FUND MONEY MARKET FUND
- ----------------------------- ------------------------------ ----------------------------------------------------------------
DIVISION 8 DIVISION 13 DIVISION 2 DIVISION 6
- ----------------------------- ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
$ 4,076,937 $ 2,982,495 $ 6,561,676 $ 3,459,290 $ 216,537 $ 306,524 $ 3,525,805 $ 3,277,326
(378,294) (28,711) 1,815,703 911,852 -- -- -- --
-- -- 295,588 114,019 -- -- -- --
(2,658,037) 5,103,399 (2,362,017) 3,111,995 -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,040,606 8,057,183 6,310,950 7,597,156 216,537 306,524 3,525,805 3,277,326
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
18,451,360 15,047,915 48,300,297 31,073,737 163,293 355,756 40,448,483 26,840,702
(3,354,710) (1,987,445) (4,925,561) (1,946,252) (465,203) (681,366) (13,617,200) (7,793,169)
-- -- (33) -- -- -- (1,584) (1,574)
(2,269,092) 9,219,172 16,174,338 42,026,449 (1,426,148) (806,250) 10,145,727 (54,484,648)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
12,827,558 22,279,642 59,549,041 71,153,934 (1,728,058) (1,131,860) 36,975,426 (35,438,689)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
13,868,164 30,336,825 65,859,991 78,751,090 (1,511,521) (825,336) 40,501,231 (32,161,363)
71,703,775 41,366,950 112,312,180 33,561,090 6,391,022 7,216,358 80,257,395 112,418,758
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 85,571,939 $ 71,703,775 $ 178,172,171 $ 112,312,180 $ 4,879,501 $ 6,391,022 $ 120,758,626 $ 80,257,395
============= ============= ============= ============= ============= ============= ============= =============
39,847,053 26,667,073 73,369,250 25,691,713 2,917,361 3,442,237 51,907,757 75,765,781
10,391,393 9,058,310 31,815,367 21,413,110 73,255 165,743 25,572,924 18,072,687
(1,871,516) (1,149,951) (3,112,236) (1,286,336) (208,252) (316,475) (8,565,366) (5,090,822)
(1,236,761) 5,271,621 10,529,212 27,550,763 (639,830) (374,144) 6,208,780 (36,839,889)
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
47,130,169 39,847,053 112,601,593 73,369,250 2,142,534 2,917,361 75,124,095 51,907,757
============= ============= ============= ============= ============= ============= ============= =============
<CAPTION>
December 31: December 31: December 31: December 31:
- ----------------------------- ------------------------------ ------------------------------ ------------------------------
1996 1995 1996 1995 1996 1995 1996 1995
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.815651 $ 1.799475 $ 1.582230 $ 1.530780 $ 2.277444 $ 2.190686 $ 1.607212 $ 1.545802
============= ============= ============= ============= ============= ============= ============= =============
$ 1.248443 $ 1.280634 $ 1.321708 $ 1.323493 $ 1.399179 $ 1.392992 $ 1.093041 $ 1.088077
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
19
<PAGE> 242
================================================================================
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31:
<TABLE>
<CAPTION>
VANGUARD VANGUARD
FIXED FIXED
INCOME INCOME
SECURITIES SECURITIES
FUND - FUND - L/T
L/T CORPORATE U.S. TREASURY
PORTFOLIO PORTFOLIO
------------ ------------
DIVISION 22 DIVISION 23
------------ ------------
1996* 1996*
------------ ------------
<S> <C> <C>
OPERATIONS:
Net investment income ........................................... $ 36,167 $ 46,282
Net realized gain on investments ................................ 2,260 2,349
Capital gains distributions from mutual funds ................... 31,298 --
Net unrealized appreciation (depreciation)
of investments during the year ............................... (11,407) 33,654
------------ ------------
Increase in net assets resulting from operations ........... 58,318 82,285
------------ ------------
PRINCIPAL TRANSACTIONS:
Purchase payments ............................................... 1,030,635 1,117,289
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees ............................ (3,212) (9,447)
Annuity benefit payments ........................................ -- --
Amounts transferred (to) from VALIC general account ............. 2,445,116 3,186,574
------------ ------------
Increase in net assets
resulting from principal transactions .................... 3,472,539 4,294,416
------------ ------------
TOTAL INCREASE IN NET ASSETS .................................... 3,530,857 4,376,701
NET ASSETS:
Beginning of year ............................................... -- --
------------ ------------
End of year ..................................................... $ 3,530,857 $ 4,376,701
============ ============
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year ............................ -- --
Purchase payments ............................................... 1,099,573 1,138,211
Surrenders ...................................................... (3,347) (9,203)
Transfers - interdivision and (to) from VALIC general account ... 2,274,215 3,045,361
------------ ------------
Accumulation units end of year .................................. 3,370,441 4,174,369
============ ============
<CAPTION>
December 31, December 31,
1996 1996
------------ ------------
<S> <C> <C>
Accumulation unit value ......................................... $ 1.047595 $ 1.048470
============ ============
Annuity unit value assuming a 3.5% discount factor .............. $ 1.029630 $ 1.030490
============ ============
</TABLE>
* For the period from July 1, 1996 to December 31, 1996.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE> 243
================================================================================
NOTES TO FINANCIAL STATEMENTS SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
NOTE A -- ORGANIZATION
Separate Account A (the "Separate Account"), established by The Variable
Annuity Life Insurance Company ("VALIC") on April 18, 1979, is registered under
the Investment Company Act of 1940 as a unit investment trust. The Separate
Account is comprised of thirty-three subaccounts or "divisions." Each division,
which represents a variable investment vehicle available only through a VALIC
annuity contract, invests in one of the following mutual funds:
American General Series Portfolio Company ("AGSPC"):
AGSPC Stock Index Fund (Divisions 10A, B, C, and D)
AGSPC MidCap Index Fund (Division 4)
AGSPC Small Cap Index Fund (Division 14)
AGSPC International Equities Fund (Division 11)
AGSPC Growth Fund (Division 15)
AGSPC Growth & Income Fund (Division 16)
AGSPC Science & Technology Fund (Division 17)
AGSPC Social Awareness Fund (Division 12)
AGSPC Timed Opportunity Fund (Division 5)
AGSPC Capital Conservation Fund (Divisions 1 and 7)
AGSPC Government Securities Fund (Division 8)
AGSPC International Government Bond Fund (Division 13)
AGSPC Money Market Fund (Divisions 2 and 6)
Dreyfus Variable Investment Fund --
Dreyfus Small Cap Portfolio (Division 18)
Founders Growth Fund (Division 30)
Neuberger&Berman Guardian Trust (Division 29)
Putnam Global Growth Fund (Division 28)
Putnam New Opportunities Fund (Division 26)
Putnam OTC & Emerging Growth Fund (Division 27)
Scudder Growth and Income Fund (Division 21)
Templeton Foreign Fund (Division 32)
Templeton Variable Products Series Fund:
Templeton Asset Allocation Fund (Division 19)
Templeton International Fund (Division 20)
Twentieth Century Ultra Fund (Division 31)
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio (Division 22)
Long-Term U.S. Treasury Portfolio (Division 23)
Vanguard/Wellington Fund (Division 25)
Vanguard/Windsor II (Division 24)
Divisions 21 through 32 commenced operations on July 1, 1996.
NOTE B -- SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The assets of the Separate Account are segregated from VALIC's other
assets. The operations of the Separate Account are part of VALIC. The following
is a summary of significant accounting policies consistently followed by the
Separate Account in the preparation of its financial statements.
INVESTMENT VALUATION. Investments in mutual funds (the "Funds") are valued
at the net asset (market) value per share at the close of each business day as
reported by the Fund.
INVESTMENT TRANSACTIONS. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the
basis of identified cost. Capital gain distributions from mutual funds are
recorded on the ex-dividend date and reinvested upon receipt.
INVESTMENT INCOME. Dividend income from mutual funds is recorded on the
ex-dividend date and reinvested upon receipt.
ANNUITY RESERVES. Net payments made by variable annuity contract owners
are accumulated based on the performance of the investments of the Separate
Account until the date the contract owners select to commence annuity payments.
Reserves for annuities on which benefits are currently payable are provided for
based upon estimated mortality and other assumptions, including provisions for
the risk of adverse deviation from assumptions, which were appropriate at the
time the contracts were issued. The 1983(a) Individual Mortality Table has been
used in the computation of annuity reserves for currently payable contracts.
Participants are able to elect investment rates between 3.0% and 6.0%, as
regulated by the applicable state laws.
21
<PAGE> 244
================================================================================
NOTES TO FINANCIAL STATEMENTS - CONTINUED SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
NOTE C -- TRANSACTIONS WITH AFFILIATES
VALIC acts as investment adviser and transfer agent to AGSPC.
The Separate Account is charged for mortality and expense risks assumed by
VALIC. The charge, based on the daily net assets of each division, is assessed
daily based on the following annual rates: for Division 10B, 0.85% on the first
$10,000,000, 0.425% on the next $90,000,000, and 0.21% on the excess over
$100,000,000; for Divisions 1, 2, 4, 5, 6, 7, 8, 10A, 10C, 10D, 11, 12, 13, 14,
15, 16, and 17, 1.00%; and for Divisions 18 through 32, 1.25%. Certain
unaffiliated mutual funds reimburse to VALIC a portion of the distribution or
administrative costs associated with offering their funds through a VALIC
annuity contract. VALIC, in turn reduces the separate account charge to that
division by the amount of the reimbursement. The expense reduction is credited
daily based on the following annual rates: for Divisions 26 through 30 and
Division 32, 0.25%; for Division 31, 0.20%.
Pursuant to the reorganization agreement entered into on April 17, 1987,
which transferred VALIC Separate Accounts One and Two into Separate Account A
Divisions 10A and 10B, respectively, expenses of each division (as defined to
include underlying mutual fund expenses) are limited to the following rates
based on average daily net assets: Division 10A, 1.4157% on the first
$359,065,787, 1.36% on the next $40,934,213, and 1.32% on the excess over
$400,000,000; Division 10B, 0.6966% on the first $25,434,267, 0.5% on the next
$74,565,733, and 0.25% on the excess over $100,000,000. Accordingly, during the
years ended December 31, 1996 and 1995, VALIC reduced expenses of Division 10B
by $73,695 and $69,586, respectively.
A portion of the annual contract maintenance charge is assessed each
contract (except those relating to Divisions 10A and 10B) by VALIC on the last
day of the calendar quarter in which VALIC receives the first purchase payment,
and in quarterly installments thereafter during the accumulation period.
Maintenance charges assessed totaled $3,625,368 and $2,494,903 for the years
ended December 31, 1996, and December 31, 1995, respectively.
VALIC received surrender charges of $1,998,356 and $1,299,069 for the years
ended December 31, 1996, and December 31, 1995, respectively. In addition,
VALIC received $76,330 and $11,846 for the year ended December 31, 1996, in
sales load on variable annuity purchase payments for Divisions 10A and 10B,
respectively. VALIC received $100,290 and $18,404 for the year ended December
31, 1995, in sales load on variable annuity purchase payments for Divisions 10A
and 10B, respectively.
NOTE D -- INVESTMENTS
The cost of fund shares is the same for financial reporting and federal
income tax purposes. The following is a summary of fund shares owned as of
December 31, 1996:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
UNDERLYING FUND DIVISION SHARES PRICE MARKET COST (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AGSPC Stock Index Fund ............... 10A,B,C,D 87,073,994 $22.76 $1,981,804,121 $1,327,746,117 $ 654,058,004
AGSPC MidCap Index Fund .............. 4 29,632,311 19.09 565,680,826 449,572,385 116,108,441
AGSPC Small Cap Index Fund ........... 14 11,997,478 15.38 184,521,204 153,924,818 30,596,386
AGSPC International Equities Fund .... 11 17,597,622 10.86 191,110,175 186,523,328 4,586,847
AGSPC Growth Fund .................... 15 37,305,439 16.99 633,819,402 536,223,583 97,595,819
AGSPC Growth & Income Fund ........... 16 11,029,231 15.53 171,283,956 143,198,387 28,085,569
AGSPC Science & Technology Fund ...... 17 36,314,121 19.54 709,577,919 650,004,665 59,573,254
AGSPC Social Awareness Fund .......... 12 6,746,465 15.53 104,772,608 92,520,041 12,252,567
AGSPC Timed Opportunity Fund ......... 5 14,900,615 11.62 173,145,150 164,668,872 8,476,278
Dreyfus Small Cap Portfolio .......... 18 12,622,965 52.08 657,404,003 554,202,812 103,201,191
Founders Growth Fund ................. 30 2,008,357 15.87 31,872,619 33,570,159 (1,697,540)
Neuberger&Berman Guardian Trust ...... 29 576,221 15.87 9,144,621 8,796,170 348,451
Putnam Global Growth Fund ............ 28 1,616,874 10.82 17,494,577 17,999,131 (504,554)
Putnam New Opportunities Fund ........ 26 1,226,012 40.63 49,812,851 51,432,630 (1,619,779)
Putnam OTC & Emerging Growth Fund .... 27 2,978,308 14.62 43,542,866 48,163,458 (4,620,592)
Scudder Growth and Income Fund ....... 21 788,862 23.23 18,325,255 18,240,537 84,718
Templeton Asset Allocation Fund ...... 19 9,215,934 21.08 194,271,899 163,221,896 31,050,003
Templeton Foreign Fund ............... 32 3,770,922 10.36 39,066,749 37,944,959 1,121,790
Templeton International Fund ......... 20 28,785,081 18.40 529,645,484 429,586,719 100,058,765
Twentieth Century Ultra Fund ......... 31 614,433 28.09 17,259,437 17,919,344 (659,907)
Vanguard/Wellington Fund ............. 25 957,006 26.15 25,025,702 25,469,774 (444,072)
Vanguard/Windsor II .................. 24 1,738,829 23.83 41,436,294 41,653,662 (217,368)
AGSPC Capital Conservation Fund ...... 1 & 7 6,540,731 9.44 61,744,501 62,635,525 (891,024)
AGSPC Government Securities Fund ..... 8 8,740,580 9.79 85,570,274 87,080,789 (1,510,515)
AGSPC Intl Government Bond Fund ...... 13 14,664,070 12.14 178,021,807 177,770,389 251,418
AGSPC Money Market Fund .............. 2 & 6 125,248,759 1.00 125,248,759 125,248,759 --
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio ..... 22 401,405 8.79 3,528,351 3,539,758 (11,407)
Long-Term Treasury Portfolio ...... 23 460,773 9.96 4,589,300 4,555,646 33,654
-------------- -------------- --------------
$6,848,720,710 $5,613,414,313 $1,235,306,397
============== ============== ==============
</TABLE>
22
<PAGE> 245
================================================================================
SEPARATE ACCOUNT A
- --------------------------------------------------------------------------------
NOTE E -- FEDERAL INCOME TAXES
VALIC is taxed as a life insurance company under the Internal Revenue Code
and includes the operations of the Separate Account in determining its federal
income tax liability. Under current federal income tax law the investment
income and capital gains from sale of investments realized by the Separate
Account are not taxable. Therefore, no federal income tax provision has been
made.
NOTE F -- SECURITY PURCHASES AND SALES
For the year ended December 31, 1996, the aggregate cost of purchases and
proceeds from sales of investments were:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
AGSPCStock Index Fund:
Division 10A ....................................... $ 17,021,738 $ 43,812,850
Division 10B ....................................... 2,580,971 5,429,098
Division 10C ....................................... 256,325,254 25,747,213
Division 10D ....................................... 2,027,471 8,102,453
AGSPCMidCap Index Fund Division 4 ..................... 82,810,931 47,686,904
AGSPCSmall Cap Index Fund Division 14 ................. 39,025,150 19,167,355
AGSPCInternational Equities Fund Division 11 .......... 86,696,926 98,467,340
AGSPCGrowth Fund Division 15 .......................... 335,262,129 301,789
AGSPCGrowth & Income Fund Division 16 ................. 86,012,396 1,299,897
AGSPCScience & Technology Fund Division 17 ............ 352,574,477 53,374,853
AGSPCSocial Awareness Fund Division 12 ................ 42,813,000 3,268,198
AGSPCTimed Opportunity Fund Division 5 ................ 28,638,442 32,465,770
Dreyfus Small Cap Portfolio Division 18 ............... 249,716,319 6,505,702
Founders Growth Fund Division 30 ...................... 33,570,159 --
Neuberger&Berman Guardian Trust Division 29 ........... 8,898,099 112,793
Putnam Global Growth Fund Division 28 ................. 18,021,308 23,414
Putnam New Opportunities Fund Division 26 ............. 51,544,430 121,537
Putnam OTC & Emerging Growth Fund Division 27 ......... 48,276,161 121,717
Scudder Growth and Income Fund Division 21 ............ 18,402,759 184,641
Templeton Asset Allocation Fund Division 19 ........... 82,157,269 2,508,019
Templeton Foreign Fund Division 32 .................... 37,950,945 6,111
Templeton International Fund Division 20 .............. 218,306,492 20,995,568
Twentieth Century Ultra Fund Division 31 .............. 18,018,419 118,068
Vanguard/Wellington Fund Division 25 .................. 25,469,774 --
Vanguard/Windsor II Division 24 ....................... 41,722,849 80,961
AGSPCCapital Conservation Fund:
Division 1 ......................................... 693,471 1,607,591
Division 7 ......................................... 14,085,173 9,602,267
AGSPCGovernment Securities Fund Division 8 ............ 25,289,634 8,298,547
AGSPCInternational Government Bond Fund Division 13 ... 90,682,754 24,293,817
AGSPCMoney Market Fund:
Division 2 ......................................... 1,864,996 3,374,351
Division 6 ......................................... 234,317,827 194,495,674
Vanguard Fixed Income Securities Fund:
Long-Term Corporate Portfolio Division 22 .......... 3,689,310 151,812
Long-Term U.S. Treasury Portfolio Division 23 ...... 4,877,356 324,059
-------------- --------------
Total ........................................... $2,559,344,389 $ 612,050,369
============== ==============
</TABLE>
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REPORT OF INDEPENDENT AUDITORS SEPARATE ACCOUNT A
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TO THE BOARD OF THE VARIABLE ANNUITY LIFE INSURANCE COMPANY AND CONTRACT OWNERS
OF THE VARIABLE ANNUITY LIFE INSURANCE COMPANY SEPARATE ACCOUNT A
We have audited the accompanying statements of net assets of The Variable
Annuity Life Insurance Company Separate Account A ("Separate Account A") and
each of the divisions (1, 2, 4, 5, 6, 7, 8, 10A, 10B, 10C, 10D, and 11 through
32, inclusive) comprising Separate Account A as of December 31, 1996. We have
also audited the related statements of operations for the year then ended and
the statements of changes in net assets for each of the two years in the period
then ended of Separate Account A and each of its divisions except for divisions
21 through 32, inclusive, for which we audited the statements of operations and
the statements of changes in net assets for the period from July 1, 1996
(inception) to December 31, 1996. These financial statements are the
responsibility of Separate Account A's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996,
by correspondence with the transfer agent. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account A and each of
the divisions comprising Separate Account A at December 31, 1996, and the
results of their operations and changes in their net assets for each of the
periods identified above, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Houston, Texas
January 24, 1997
24
